AIR’s ClimateCast® U.S. Hurricane Risk Index provides an assessment of financial risk to U.S. insured exposure from active tropical cyclones in the Atlantic basin. Potential risk is captured in the form of insured loss that is indexed against the AIR U.S. Hurricane Model’s exceedance probability (EP) curve. The higher the risk index, the higher is the loss potential. For a detailed description of the index and its formulation, click here.

Index Summary (top left panel)

The summary panel provides an “executive summary” of the current financial risk, as quantified by the latest available ClimateCast® U.S. Hurricane Risk Index. The index, which is computed to one decimal precision (e.g., 5.3), is shown in the summary panel. Next to the risk index is a thermometer icon that provides a quick visual analog of the threat level—how “hot” is the risk of insured loss—on a scale from 0 to 10. Below the risk value and the thermometer, are two 24-hour metrics. The first is the 24-trend value which indicates if the index is trending upward, downward, or does not show a significant trend. The second is the 24-volatility which reflects swings in the index value over the previous four 6-hourly forecast cycles, indicating low, moderate, or high volatility.

An index value of “0” indicates that there are currently no active tropical cyclones in the Atlantic, or that the active systems have little to no chance of making landfall at sufficient strength within the next seven days to cause loss, according to the latest available forecast data. A value of “5” indicates that the expected, or mean, loss corresponds to an annual exceedance probability for the U.S. of 10% (10-year return period), while a value of “10” indicates that the mean loss corresponds to an annual exceedance probability for the U.S. of 1% (100-year return period). Note that the exceedance probabilities (or return periods) are based on the latest version of the AIR U.S. Hurricane Model.

U.S. Landfall Probability (top right panel)

The landfall probability map displays the likelihood of landfall occurring along each of 62 50-nautical mile segments that define the U.S. coastline. Segments that are unaffected by any of the 500 landfalling events from the scenario set are shown in gray. Non-zero levels of probability of landfall are depicted by different colors. For example, segments outlined in purple indicate the highest probability of landfall, which is defined as having at least 10% of the scenarios reaching that segment with damaging winds of at least 40 mph.

The Index’s Seasonal History (bottom left panel)

The seasonal time series panel displays the index’s continuously assessed risk level beginning from the official start of the hurricane season on June 1st. Volatility and trends in the ClimateCast U.S. Hurricane Risk Index are indicative of changes in the operational model forecasts over time, the changing probability of landfall as storms move about, and the different exposures at risk as the forecasts change.

The Index’s History over the Last Two Weeks (bottom right panel)

The two-week time series displays the index’s continuously assessed risk level over the most recent two-week period. As with the seasonal history, volatility and trends in the index value are indicative of changes in the operational model forecasts over time, the changing probability of landfall as storms move about, and the different exposures at risk as the forecasts change.

Understanding Uncertainty

Successful risk management is not a matter of simply managing expected levels of risk. Rather, it must be balanced with an assessment of the degree of confidence one can place in estimates of risk. ClimateCast can help risk managers in this task by providing guidance concerning the expected levels of risk (for example, the mean and median index values), as well as guidance concerning the current confidence level based on the full distribution of potential losses.

When it comes to real-time hurricane risk, both expectation and uncertainty levels can change quickly and in unexpected ways. By following the risk index closely and continuously, it is possible to gain a competitive edge over others who may simply assume that all forecasts are wrong (uncertainty is infinite all the time) or that forecasts are bound to become more accurate as storms make landfall (uncertainty decreases monotonically as storms approach land). In the first case, expected risk is disregarded entirely, and in the second, risk is considered carefully only when large losses are imminent or have already occurred. In both cases, faulty assumptions can lead to poor risk management. The ClimateCast U.S. Hurricane Risk Index provides an objective and quantitative means by which changes in expected risk and the corresponding level of uncertainty can be assessed as they are happening.

Contact the ClimateCast® Team

AIR is actively engaged in climate research tied not only to real-time risk assessment, but also to other often-discussed topics such as the impact of warming ocean temperatures, climate change projections, and the implications of climate change for risk management. This research will ultimately lead to further enhancements and refinements in the ClimateCast suite of risk assessment tools. In the end, it is feedback from users that guides the improvements that will make ClimateCast more directly applicable to the catastrophe risk management process. We therefore encourage you to contact AIR Worldwide at climatecast@air-worldwide.com with comments and suggestions, and with thoughts about how the tools can be used to improve day-to-day decision making.

If you have technical or business-related questions pertaining to this or other ClimateCast® products, please contact your AIR representative. You can learn more about AIR and its modeling and risk assessment products and services by visiting our website at http://www.air-worldwide.com