Hurricane Delta to slam Yucatan, approach Gulf Coast at near Cat 3 strength

Hurricane Delta has weakened slightly on approach to Mexico’s Yucatan Peninsula, but still at major Category 3 strength will deliver a life-threatening storm surge and damaging winds and is then expected to head into the Gulf where it could maintain major status right up to landfall on the U.S. Gulf Coast at the end of the week.

Now weakened to maximum sustained winds of around 115 mph, with higher gusts, hurricane Delta does not appear to pose a threat to the World Bank’s IBRD issued IBRD / FONDEN 2020 catastrophe bond transaction, that provides disaster insurance and reinsurance to Mexico’s Government’s FONDEN catastrophe fund any more.

Hurricane Delta’s minimum central pressure has been reported as having risen to 972mb at the latest NHC update, considerably higher than the 954mb it was reported at yesterday and this is now far above the 930mb to 940mb levels required for that cat bond to see its parametric trigger activated.

Hurricane Delta is not expected to strengthen any further as it approaches the Yucatan, where severe impacts are expected for the tourism hotspot areas of Cozumel, Cancun and Quintana Roo. But intensification is expected as soon as hurricane Delta emerges back over the Gulf of Mexico and sets course for the United States.

Insurance and reinsurance market exposures in the Yucatan region are not particularly significant, although high-value properties, such as hotels and resorts, are well-insured in the region, some with parametric coverage and so some reinsurance exposure is possible should hurricane Delta’s impacts be particularly significant there.

The NHC warns of a life-threatening storm surge of between 8 ft to 12 ft above normal tide levels along the northern coast of the Yucatan Peninsula from Cabo Catoche to Progresso, and 6 ft to 8 ft above normal tide levels along the eastern coast of the Yucatan Peninsula from Tulum to Cabo Catoche.

In addition, the NHC warns that the Yucatan Peninsula will experience “extremely dangerous hurricane conditions” as hurricane Delta impacts land and up to 10 inches of rain in exposed locations.

“Some weakening is likely when Delta moves over the Yucatan peninsula, re-strengthening is forecast when the hurricane moves over the southern Gulf of Mexico Wednesday night and Thursday,” the NHC explained in its latest update.

A previous hurricane, Wilma in 2005, drove a 15 foot storm surge into the Quintana Roo region of Mexico, causing direct insurance industry property losses of over $500 million, analysis from reinsurance broker Guy Carpenter said.

Guy Carpenter explained, “Over 100 hotels were significantly damaged or destroyed, nearly 10,000 homes destroyed and another 19,000 homes significantly damaged. Ultimate business interruption losses from Wilma exceeded property damages due to loss of tourism revenue.”

However, most of the global insurance, reinsurance and ILS industry will now be focused on how hurricane Delta reacts to its interaction with and landfall on the Yucatan Peninsula and how well it maintains its structure as it heads into the Gulf of Mexico, where it could remain a major hurricane as it tracks towards the U.S. coastline.

The image below from Tropical Tidbits showing modelled forecast guidance on the intensity of hurricane Delta is becoming more aligned between the model runs.

It shows that hurricane Delta is expected to weaken after impacting the Yucatan, but could then intensify strongly to reach major hurricane status again before it reaches the Gulf Coast.

Some models suggest Delta may sustain major status and strike the U.S. in the Louisiana region as a Cat 3 or stronger hurricane.

But other forecasters suggest that the combination of increasing wind shear and cooler waters in the northern Gulf, could impact Delta’s ability to maintain major hurricane status and result in a slightly weaker landfall.

But a stronger landfalling hurricane cannot be ruled out at this stage and we’ll need to see how Delta looks after it has emerged back over the Gulf of Mexico late on Wednesday, into Thursday.

Hurricane Delta’s exact path remains a little uncertain, as well as its strength, with the cone of uncertainty suggesting the Gulf Coast from Texas to Florida could experience hurricane conditions at the end of the week.

The eventual landfall location has so far been centred on Louisiana and as we know from recent storms, exactly where in Louisiana a significant hurricane comes ashore can make all the difference in terms of reinsurance market losses.

We’ve seen some early modelled forecasts suggesting the potential for a $10 billion plus insurance industry loss from hurricane Delta, based on it maintaining major status and impacting central Louisiana. A weaker hurricane would be expected to drive impacts closer to low single-digit billions of losses, we’re told.

However, we understand from sources that the size of hurricane Delta will also be a factor in just how significant a loss it causes once it strikes the United States. Still a relatively small hurricane, Delta could grow once it emerges over the Gulf of Mexico and should a larger, stronger storm impact the U.S. the eventual insurance and reinsurance market loss could be more significant.

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