Updated – 21:00 UTC September 8th: Major category 5 Hurricane Irma, which became the second strongest storm in history in the Atlantic, has battered the Leeward Islands of the Caribbean leaving a trail of destruction, as it continues on its route towards Florida still packing 155 mph winds.
The forecast for hurricane Irma shows that it is likely to maintain major hurricane status and intensity as it aims for Florida and the U.S. coastline over the coming days. Irma remains en route to pass between the Bahamas and Cuba on Friday, before the current forecast shows a curve north towards the U.S. at southern Florida. The latest track shows a potential worst case scenario with a Miami area landfall, but it’s early days still and there is plenty of time for the track to shift.
Hurricane Irma is an exceptionally dangerous category 5 storm, with sustained winds of 155 mph, higher gusts and a minimum central pressure of 925mb as at 21:00 UTC on September 8th. Irma has battered the northern Leeward Islands, causing significant damage and destruction to islands such as Barbuda, Antigua, Anguilla, St Martin, St Barts, the British Virgin Islands and the Turks & Caicos. Hurricane Irma also made a close pass by Puerto Rico, but it appears to have been spared the worst of the storm.
Following on the heels of Harvey, hurricane Irma will alert insurance, reinsurance, catastrophe bond and ILS market interests to the potential for a second landfalling hurricane event in quick succession, which could stimulate some trading and protection buying activity over the coming days.
In the Leeward and Caribbean islands reports, photos and video footage show significant damage, with at least fourteen lives lost according to media and some calling it the worst devastation they have seen.
Given that dangerous hurricane Irma has passed directly over Barbuda and Anguilla and impacted other islands severely in recent hours, it is highly likely the parametric CCRIF SPC sovereign disaster insurance policies will pay out (it seems hard to imagine the parametric trigger escaping from such a powerful storm). Anguilla, Antigua & Barbuda all have CCRIF policies in force.
A.M. Best said that re/insurers providing property and casualty coverage in the Caribbean area affected by hurricane Irma will likely face “substantial losses.”
The forecast models continue to show considerable uncertainty as to hurricane Irma’s eventual track once it nears the Bahamas and Cuba, with the storm expected to get picked up and steered northwards by troughs of higher pressure.
After a shift west, the forecast cone has now moved back to the east, widened a little and currently hurricane Irma is on a collision course with the east Florida coastline somewhere around the Miami Dade area, which is clearly near to a worst case scenario. But much uncertainty remains and as you can see from the models below, Irma could miss Florida entirely or barrel straight into the peninsula.
The shift in the forecast models and the widening of the cone, which had narrowed previously, could be due to the interaction with islands as that can cause some model variants to assume a different track for a hurricane. The uncertainty may lessen once hurricane Irma passes into more open water beyond the Turks & Caicos islands and below the Bahamas, as it is currently forecast to.
The forecast shows hurricane Irma maintaining very strong intensity, after its central pressure continued falling and wind speeds reached Cat 5, as well as for the storm to continue to grow in size as it progresses towards the Bahamas and Florida. If a Florida landfall does happen, it is likely to be at Category 3 or higher, the data suggests.
Hurricane Irma is a very large storm with a wide wind swathe, which can mean even a near miss can be devastating for islands or coastline in its path. Hurricane-force winds extend outward up to 70 miles and tropical-storm-force winds up to 185 miles from the center of Irma. With the eye around 65 miles wide as well that puts hurricane Irma at well over 400 miles across and this would straddle the Florida peninsula entirely, should it take a direct path north through it.
This coming weekend and the early part of next week the global reinsurance industry will be meeting in Monte Carlo for the annual Rendez-vous de Septembre event, where discussions are typically focused on industry trends and on the key January renewal season as it approaches. Hurricane Irma coming so soon after Harvey could change the focus for this year’s event.
Hurricane Irma has stimulated some live-cat trading activity as it approaches the U.S., while the forecasts continue to show a landfall as likely. Given the industry has yet to fully comprehend the impact and loss from hurricane Harvey there will be many companies nervous about a second major hurricane landfall, which could push more protection buyers to come forward.
As well as live cat trading activity (as we report here), hurricane Irma has also stimulated protection buyers to look for back-up covers or second-event protection, given this hurricane is coming so soon after the last multi-billion dollar industry loss event.
Some re/insurers may feel they lack protection in the wake of Harvey, with some of their programs expected to be eroded a little, potentially providing opportunities for those markets looking to underwrite peak cat risks on a live basis. This could be attractive for any ILS funds with cash sitting waiting for an investment opportunity.
A landfall from Irma as a major hurricane would without doubt further erode aggregate deductibles, on traditional reinsurance contracts, catastrophe bonds, collateralized reinsurance and private ILS arrangements. A severe landfall in a highly populated coastal region could cause major losses across the sector, including to cat bonds.
A second hurricane loss event will also push more of the bill into reinsurers sidecars and retrocessional arrangements as well.
For the catastrophe bond market, there is significant U.S. east coast exposure of course, from Florida all the way up the coast, meaning that as hurricane Irma approaches the secondary market could come to life, with investors and ILS funds looking to trade out of positions deemed most risky. But this is unlikely to be a major feature of the market until the middle of the week.
The cat bond market has not reacted in a big way, as yet, although some selling off has been seen but these are said to be edge cases where investors do not want to get caught with exposed positions.
At this time the insurance, reinsurance and ILS investment community remains on alert and on watch for hurricane Irma, as it’s still too early to know whether a major impact is a likely outcome, but the chances of a hit are perhaps rising with each passing day.
NOAA warns of a dangerous storm surge and potentially devastating winds for any islands hurricane Irma tracks directly across or close by. This storm poses a significant threat to lives at this stage and the impacts already seen are significant, with some islands likely needing support and aid immediately.
We’ll continue to update you as hurricane Irma nears the Florida and the U.S., as the forecast track becomes more certain.
You can track the hurricane season over at our dedicated page and all the graphics in this article will update automatically, so stay tuned.
– CCRIF to pay $15.6m on Hurricane Irma impact to Leeward Islands.
– Hurricane Irma track aims at Miami, a $131bn realistic disaster scenario.
– Blue Capital halts ILS fund buy-backs as hurricane Irma approaches.
– Cat bond trading slight on Irma, Kilimanjaro II Re trades down.
– Hurricane Harvey re/insurance industry loss over $10bn: AIR.
– Irma & Harvey losses combined may still just be an earnings event: Morgan Stanley.
– Citrus Re 2017 cat bond notes trade down 50% on hurricane Irma threat.
– Hurricane Irma live cat activity focused on $40bn+ loss, pricing uncertain.
– Hurricane Irma landfall in Florida would hit reinsurers hard: KBW.
– Hurricane Irma a potential U.S. (Florida) threat this weekend.
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