The 2016 Atlantic tropical storm and hurricane season is forecast to produce 12 named storms, 6 hurricanes and 2 major hurricanes, by Tropical Storm Risk, figures that are 20% below the long-term average and 15% below the recent 2006-15 average.
The reason for yet another below average prediction of hurricane activity for the Atlantic and Caribbean basin is an expectation that sea surface temperatures will be cooler in the North Atlantic and Caribbean, which is expected to have a neutral effect on the chances of storm development.
The Atlantic hurricane season officially begins in June, and remains the largest seasonal threat to reinsurance capital and catastrophe bonds. Despite a period of low impacts from hurricanes in the Atlantic in recent years, this remains the largest single seasonal threat to insurance-linked securities (ILS) funds and their investors.
The forecast team of Professor Mark Saunders and Dr. Adam Lea at Tropical Storm Risk are one of the teams tracked closely by the insurance, reinsurance and catastrophe bond markets, given their research is supported by reinsurance broker Aon Benfield.
Sea surface temperature forecasts are not the only factor suggesting another below average hurricane season according to TSR.
Current forecasts suggest that trade winds over the North Atlantic and Caribbean will be slightly stronger than originally anticipated, and that this could have a further suppressing effect on the development of tropical storms in these basins.
This trade wind expectation is drawn from the waning of the El Niño conditions, the expected transition to ENSO neutral conditions and the chance of a transition to La Niña.
On an accumulated cyclone energy (ACE) basis the researchers say there is a 25% probability that the 2016 Atlantic hurricane season ACE index will be above-average, a 35% likelihood it will be near-normal and a 40% chance it will be below-normal.
If this seasonal forecast for Atlantic hurricane activity proves accurate the researchers say that it points towards the current active phase of Atlantic hurricane activity, that began in 1995, having ended.
The last few years can hardly be called particularly active, but the chance of activity becoming even lower could be positive for the insurance, reinsurance and catastrophe bond market. However, as always, it’s important to be cautious, as just one landfalling storm can result in a significant impact to these markets and the region where a storm strikes.
An inactive hurricane phase may mean fewer storms forming, but does not imply lower chances that the hurricanes that do form make landfall, and it is landfall that is the real threat to re/insurance capital, the economy and populations in a hurricanes path.
You can download the full April forecast update from the Tropical Storm Risk website.
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