The amount of homes at risk of storm surge along the Gulf and Atlantic coasts has increased to 6.6 million from 2014, while the total reconstruction cost values (RCV) of the properties has remained at an estimated $1.5 trillion, according to CoreLogic.
A new report by global property information, analytics and data-enabled service provider, CoreLogic, titled “Storm Surge Report, June 2015,” highlights the potential severity of an intense hurricane-induced storm surge along U.S. coast lines.
As a major threat to insurance, reinsurance and catastrophe bond or ILS markets, storm induced surge has the potential to be as damaging as wind to the industry, with insured exposures increasing all the time.
The storm surge phenomenon is largely dependent on the intensity of hurricanes and perhaps more notably the location of the surge occurrence, however, some research points to the possibility that rising sea levels and other factors are contributing to a rise in the severity and frequency of the peril.
With this in mind, the possibility for a hike in global losses from storm surge is apparent, signalling a threat to reinsurers as well as fund managers in the catastrophe bond and insurance-linked securities (ILS) space.
To tackle the growing threat of storm surge and coupled with the culmination of a greater industry-wide understanding of the peril’s risks, a rise in storm surge catastrophe modelling capabilities have come to light.
This includes Karen Clark & Company’s (KKC) storm surge model that is accessible through its RiskInsight catastrophe modelling platform, and news in December last year that the NOAA will release storm surge watch and warnings graphics, along with its comprehensive Potential Storm Surge Flooding Map, which launched at the beginning of the 2014 Atlantic hurricane season.
The report notes that similar conditions this year, as witnessed in 2014 and 2013, point to another below-average Atlantic hurricane and tropical storm season, but this doesn’t mean the potential for storm surge losses diminishes also.
It only takes a single storm to approach the U.S. coastline at the right location, angle, tide position and wind direction for a devastating storm surge to occur.
In fact, it can often be the case that the damage caused by storm surge can incur far greater costs than the actual storm itself, and should the surge take place along the coast of a highly populated region, like Florida, Louisiana or New York, the number of properties at risk is staggering.
For Florida the study claims that 793,204 homes are at extreme risk of storm surge, and a total of 2.5 million homes are at risk all together. Making it top of the list in order of most properties at risk.
Second, is Louisiana which has a total of 760, 272 homes at risk, and then New York comes third, with a total 464,534 properties at risk.
The study continues to explain that New York and Florida are likely to have higher reconstruction cost value (RCV) totals, as the asset values in these regions is often greater than other states.
The report says; “The likelihood for flood damage caused by storm surge is not just limited to isolated locations along the coast, and certain areas are more vulnerable than others. As Hurricane Sandy demonstrated just three years ago, one storm is all it takes to cause a tremendous amount of property damage in a densely populated area.”
A large number of catastrophe bonds that cover U.S. hurricane typically include a level of storm surge protection as well, but growing investor appetite for the ILS asset class and a growing understanding of the potential severity of the peril has led to a change.
Revealing perhaps a change in the perceived threat from storm surge for investors and sponsors alike, the world’s first purely storm surge focused catastrophe bond was launched in 2013, a $200 million MetroCat Re Ltd. (Series 2013-1) transaction.
Also ILS investors and funds are increasingly exposed to storm surge within property catastrophe reinsurance programs that they provide collateralized coverage to, ensuring that the ILS market’s exposure to surge continues to rise.
The CoreLogic 2015 storm surge report comprehensively examines the threat of storm surge by individual states, including a break down of property-level exposure, and can be accessed in full here.