The Australian Bureau of Meteorology’s confirmed yesterday that El Niño threshold levels have been reached in the tropical Pacific ocean for the first time since March 2010 and that it foresees a “substantial” event, which will likely impact insurance and reinsurance players.
Earlier this year U.S. scientists said that a “weak” El Niño was seen for 2015, but the Australian BOM now believes that towards the end of this year conditions could move towards a “substantial” El Niño event being seen.
El Niño is a weather pattern driven by ocean temperature variation. It can be responsible for extreme weather conditions, from drought to severe flooding and more intense storms, with impacts differing depending on where in the world you are.
For the Atlantic hurricane season El Niño can mean lower incidence of storms and the weak El Niño has already been held responsible for a slower than usual start to the U.S. tornado season.
For insurance and reinsurance companies the ramifications are clear. El Niño years have been responsible for great increases in agricultural insurance claims, drought, devastating flooding, severe storms, blizzards and a general uptick in weather severity in certain parts of the world.
As a result there will be a heightened chance of increased weather and catastrophic insurance or reinsurance losses while an El Niño event persist. Of course that could be offset by a slower than usual Atlantic hurricane season, but the general picture with an El Niño year tends to be unpredictability as well, which is never comfortable for re/insurers.
Weather risk management and insurance sector participants will also closely be watching the development of an El Niño event as it can affect the hedges they buy or finance, particularly where they are due to rainfall levels.
And for insurance-linked securities (ILS) investors there is always the potential for exposure to an event which has been caused by the El Niño pattern. With a number of ILS fund and collateralized reinsurance sidecars participating in agricultural reinsurance, that could be an area where we see some losses trickle in as a result of it becoming an El Niño year.
Assistant Director for Climate Information Services at the Australian BOM, Mr Neil Plummer, commented; “The onset of El Niño in Australia in 2015 is a little earlier than usual. Typically El Niño events commence between June and November.”
Plummer noted that El Niño cannot be held to blame for the recent severe weather that affected Australia; “Recent significant rainfall and flooding along the east coast of Australia, associated with two almost back-to-back East Coast Lows, did not penetrate far into inland regions and therefore have done little to alleviate conditions in drought affected areas.”
David Jones, manager of climate monitoring and prediction at the BOM, told reporters that “This is a proper El Niño effect. It’s not a weak one.”
“There’s always a bit of doubt when it comes to intensity forecasts,” Jones continued “But, across the models as a whole, we’d suggest that this will be quite a substantial El Niño event.”
El Niño is blamed for a variety of severe climate impacts, from droughts in Australia and other Pacific rim countries, to flooding in others, severe winter weather in the U.S. and typically impact to farmers and agriculture in many countries.
El Niño is thought to widely disrupt weather patterns, creating conditions that can result in increased severity of some weather patterns, disruption of others, and generally create uncertainty in weather and climate events.
The full update from the Australian BOM can be found below:
The tropical Pacific is in the early stages of El Niño. Based upon model outlooks and current observations, the Bureau’s ENSO Tracker has been raised to El Niño status.
El Niño–Southern Oscillation (ENSO) indicators have shown a steady trend towards El Niño levels since the start of the year. Sea surface temperatures in the tropical Pacific Ocean have exceeded El Niño thresholds for the past month, supported by warmer-than-average waters below the surface. Trade winds have remained consistently weaker than average since the start of the year, cloudiness at the Date Line has increased and the Southern Oscillation Index (SOI) has remained negative for several months. These indicators suggest the tropical Pacific Ocean and atmosphere have started to couple and reinforce each other, indicating El Niño is likely to persist in the coming months.
International climate models surveyed by the Bureau indicate that tropical Pacific Ocean temperatures are likely to remain above El Niño thresholds through the coming southern winter and at least into spring.
El Niño is often associated with below-average winter and spring rainfall over eastern Australia, and above-average daytime temperatures over the southern half of the country. However, the current May to July outlook suggests much of Australia is likely to be wetter than average. This is because a warmer-than-average Indian Ocean is dominating this outlook. El Niño is expected to become the dominant influence on Australian climate during the second half of the year.