Hurricane Dorian stronger, forecast worse, loss estimates say up to $25bn

Hurricane Dorian has strengthened considerably over night, now packing 110 mph sustained winds and higher gusts making the storm an already very dangerous Category 2. At the same time the forecast path has shifted further south, increasing the insured values in Dorian’s path.

Update, Sep 5th: Hurricane Dorian remains a strong hurricane. The U.S. coastline is not yet in the clear, as Dorian is forecast to hug it on the way north, with dangerous winds and storm surge expected and a chance of making landfall. Our latest here.

Original article:

Hurricane Dorian continues to track towards a Florida landfall, with significant time left to strengthen over open warm seas and wind shear slight.

Further intensification of hurricane Dorian is almost assured and the forecasts still present a roughly Category 4 major hurricane at landfall on Florida’s east coast on Monday.

As hurricane Dorian has strengthened, the forecast path and its landfall location has worsened, by moving south slightly.

Now, based on the latest forecast, hurricane Dorian is predicted to come ashore with Category 4 winds forecast to be as high as 138 mph (120 knots), but with wind gusts of 145 knots cited in the latest National Hurricane Center discussion, which would be as much as 167 mph.

The cone of uncertainty has shifted further south, putting hurricane Dorian’s forecast path towards areas of high-value (and highly insured) property around West Palm Beach. Further shifts south could increase the insured values in the path of hurricane Dorian, worsening the loss outlook for insurance, reinsurance, insurance-linked securities (ILS) and catastrophe bond markets.

A significant insurance and reinsurance market loss situation looks increasingly likely, if the forecast path for hurricane Dorian proves remotely accurate and the intensification occurs and is sustained through to landfall.

Wild cards still exist in the forecast, as steering ridges of high pressure over Bermuda and the United States struggle to control hurricane Dorian’s path, while a blocking ridge to the north makes it hard for the hurricane to recurve and veer north, as they naturally tend to want to do.

Many of the forecast models now show hurricane Dorian slowing considerably on its path through the Bahamas towards the Florida coastline, which raises additional concerns about the potential for loss given major hurricane force winds could be sustained for longer over the coast, hurricane force winds for longer over inland areas and rainfall totals could be significantly higher, raising the threat of severe flooding.

Hurricane Dorian’s exact track is another area of uncertainty, as shifting south likely increases the property values at risk of damage from the storm, north could lessen that a little.

The chances of Dorian crossing the peninsula and entering the Gulf of Mexico for a second landfall appear to have lessened, this still cannot be ruled out at this stage.

Similarly, Dorian could shift south for landfall raising the potential for a high insurance and reinsurance loss, but then curve north quickly after landfall to travel up the peninsula, affecting a wide swathe of Florida.

As ever, there are plenty of worst case modelled scenarios to assess, but the actual impacts will be difficult to forecast until hurricane Dorian is much closer to Florida and the landfall location and intensity are better understood, as well as more certain.

Along with modelled scenarios come early estimates of losses to the insurance, reinsurance, ILS and cat bond sectors.

Analogue Cat 4 Florida landfalling hurricanes have caused average economic losses of around $30 billion, according to data normalised to 2019 dollar values. This excludes the Great Miami hurricane which is an outlier and if included takes the average economic loss from a Category 4 Florida hurricane landfall to a massive $50 billion (all based on ICAT data).

Taking the three Category 4 hurricanes which made landfall closest to the West Palm Beach area of the Florida coast, the average economic damage in 2019 dollars comes out at around $37 billion.

Category 3 Florida landfalls, in 2019 dollars, average economic losses at around $14 billion, while taking the two closest analogues for landfall location reduces the average economic loss to $9.8 billion.

Hurricane Jeanne from 2004 is perhaps the closest Category 3 landfall analogue, in terms of location and potential track, which ICAT says caused almost $17 billion of economic losses in 2019 dollars.

Meanwhile, catastrophe risk modelling firms have been sending out updates to their clients, featuring Category 3 and 4 landfall scenarios showing insurance and reinsurance market losses ranging from $7.5 billion to as much as $30 billion we understand, but as of yesterday the average seemed to be from $10 billion to $17.5 billion based on the forecasts available at the time.

With the forecast landfall location having moved south slightly and the wind speed forecast increased, it’s safe to assume that these modelled loss estimates will have increased as well, hence industry loss estimates will likely move to the $12.5 billion to $25 billion mark from model runs simulating the Cat 4 Dorian landfall.

Insurance-linked securities (ILS) manager and advisory ILS Advisers said that the early estimates it has seen put the industry loss at between $15 billion and $25 billion.

Accuweather has increased its forecast for economic damages from hurricane Dorian, having originally pegged an estimate at up to $15 billion the latest from Accuweather, based on estimates of damage to homes and businesses, their contents and autos, as well as job and wage losses, infrastructure damage, costs due to Labor Day travel, to the tourism industry and Disney World, as well as auxiliary business losses, to now cite a possibility of up to $20 billion of economic costs from the storm.

The live cat market is active, in terms of discussions, we’re told.

A number of markets have emerged with a desire to sell live cat capacity, although some of the usual suspects have not this year given they had already increased their Florida exposure at the mid-year renewals.

Broking sources suggest discussions focus largely around the $20 billion to $30 billion industry loss level at the moment. However one broker told us that while discussions will likely be abundant, getting deals done may not happen as easily, given many companies are already well protected and this is the first potential major catastrophe loss event of the year.

Live cat trades tend to happen more fluidly once reinsurance firms have already faced a degree of losses in the year and eaten into some of their protection. So trades in the advance of hurricane Dorian may actually be relatively few in number, although all of our sources said there are likely to be some that get completed.

However, we’re told the Cat 4 forecast is pushing selling markets towards $35 billion to $40 billion, while buyers are not looking that high as of yet, making trading today hard to see.

It’s going to be some time still before there can be any certainty in loss estimates, given hurricane Dorian has a way to travel to reach Florida.

But still, the forecasts continue to worsen the outlook for insurance, reinsurance and ILS market interests, which will keep everyone on their toes over this weekend.

We will update you further as new information comes to light.

Below is the latest intensity model output from TropicalTidbits.com

Below are the latest GFS ensemble hurricane forecast model tracks for Dorian, from TropicalTidbits.com.

NOAA’s latest on Dorian is below:

At 800 AM AST (1200 UTC), the center of Hurricane Dorian was located near latitude 24.2 North, longitude 69.4 West. Dorian is moving toward the northwest near 12 mph (19 km/h), and this motion is expected to continue through today. A slower west-northwestward to westward motion is forecast to begin tonight and continue through the weekend. On this track, Dorian should move over the Atlantic well east of the southeastern and central Bahamas today, approach the northwestern Bahamas Saturday, and move near or over portions of the northwestern Bahamas on Sunday.

Data from an Air Force Reserve reconnaissance aircraft indicate that maximum sustained winds have increased to near 110 mph (175 km/h) with higher gusts. Strengthening is forecast during the next few days, and Dorian is expected to become a major hurricane later today. Dorian is likely to remain an extremely dangerous hurricane while it moves near the northwestern Bahamas and approaches the Florida peninsula through the weekend.

Hurricane-force winds extend outward up to 25 miles (35 km) from the center, and tropical-storm-force winds extend outward up to 105 miles (165 km).

The minimum central pressure just reported by the Air Force reconnaissance plane was 972 mb (28.70 inches).

We will update you on hurricane Dorian as it proceeds and the threat it could pose to global insurance, reinsurance and ILS market interests.

You can always visit our 2019 Atlantic hurricane season page for the latest.