Hurricane Ike

Pre-Landfall 3 | Summary
Posting Date: September 11, 2008, 9:00:00 AM

As expected, Hurricane Ike strengthened after exiting Cuba yesterday. By 2:00 pm EDT, Wednesday, September 10, Ike had achieved Category 2 status, with winds of 100 mph. However, little has changed since then and as of 8:00 am EDT today, Thursday, September 11, maximum sustained winds remain at 100 mph. Ike is a large storm; hurricane force winds currently extend outward up to 115 miles from the center, which is currently moving to the west-northwest at near 10 mph. The structure of this storm appears to have meteorologists at the NHC puzzled. Over the course of the last twelve hours, the storm has been exhibiting not one, but two well-defined areas of maximum winds—one near the eyewall and another in an outer wind band. Additionally, there has been a pronounced disparity between central pressure and wind data. Reported central pressure—945 mb at 8:00 am—would normally be consistent with a borderline Category 3/4 hurricane, yet both dropsonde and flight-level wind data point to Category 2-level winds. The critical issues are twofold: the degree to which Ike will strengthen, and where on the coast it will make landfall. The NHC forecast track now takes Ike just north of some warm eddies in the western Gulf. At the same time, wind shear in this part of the Gulf is modest, and an anticyclonic flow at upper levels will assist Ike in maintaining an efficient outflow. Forecasters at the NHC currently assign a 23% probability to Ike’s achieving Category 3 status in the next 24 hours and an 8% chance that it will achieve Category 4 status in that time period. For more information, please visit the NHC website. With respect to forecast track, Ike is being steered to the west-northwest by a strong ridge that extends from the U.S. Southeast to Texas. But that portion of the ridge over Texas is expected to begin to weaken within 48 hours. That should cause Ike to turn to the northwest and north. Ike's slow progress over the last 24 hours (forward speed between just 7 and 8 mph) has increased the likelihood that the turn will come prior to Ike's reaching the coast. As a result, the NHC’s forecast landfall location has shifted to the north and—unfortunately—closer to the Galveston/Houston area. Such a course would also mean that more offshore platforms and rigs are likely to be affected. According to the Minerals Management Service of the federal government, more than 400 of the 700+ manned production platforms in the Gulf have been, or are being, evacuated. Hurricane Ike’s track through the Caribbean and Gulf is somewhat similar to that of the Galveston hurricane of 1900, though the intensity evolution is rather different. The 1900 event failed even to reach hurricane strength until it entered the Gulf. But once there it intensified rapidly and made landfall as a Category 4 hurricane with wind speeds estimated at 150 mph. AIR estimates that a recurrence of the Galveston hurricane could result in insured losses of more than $30 billion. The NHC does not anticipate Ike will reach such intensity, however.
Track of 1900 Galveston Hurricane. Source: AIR The largest concentrations of exposure in Texas are along the northern part of the coast, near Houston. In fact, the five northernmost coastal counties, including Houston's Harris County, account for 85% of the total coastal exposure in Texas, which by AIR’s estimate exceeds $890 billion. However, it is important to point out that there is still considerable uncertainty with respect to both Ike’s intensity at landfall and the landfall location. Even a slight change in either could have a significant impact on potential losses. The AIR tropical cyclone team continues to monitor this storm closely. AIR estimates an expected (mean) insured industry loss to onshore U.S .property exposures from Hurricane Ike of $6 billion, with a 90% confidence interval of $100 million to $28 billion. Note that the scenarios posted on the Scenarios page of the ALERT website, as well as those in the CATRADER and CLASIC/2 Event Sets are not equally likely. AIR produces a full probability distribution of losses based on current and forecast parameters and track as reported by the National Hurricane Center. The range of losses provided in the posted scenarios captures the 90% confidence interval of the full distribution. Note that this means that losses in excess of the largest posted loss are possible, but have a very low probability of occurrence. To view the full range of scenarios, clients can download the full event set, which includes the entire distribution of losses. AIR’s expected, or mean, loss is truly the expected value of the full loss distribution and will not exactly match the “50% probability loss” in the posted scenarios, since the latter is the median loss scenario. The wide range in loss estimates in this pre-landfall posting is attributable to several factors. First is uncertainty with respect to the storm’s future track and intensity as it approaches the coast. (The loss estimates in this posting are based on information in the National Hurricane Center’s 5:00 a.m. advisory.) The lower end of the loss range comes from less intense events passing over regions of the coast that have relatively low property exposure. The higher end of the range comes from events making a more direct impact on Houston. Second is the uncertainty around take-up rates for storm surge coverage for commercial exposures, as noted above. Finally, it is worth noting that the NHC forecast “cone of uncertainty” does not capture the full range of possibility, though it serves as an excellent guideline for what can be expected under the forecasted conditions. AIR’s loss estimates reflect:

• Insured physical damage to property (residential, commercial, industrial, auto), both structures and their contents;
• Additional living expenses (ALE) for residential claims;
• For commercial lines, insured physical damage to structures and contents, and business interruption directly caused by storm surge, assuming a 10% take-up rate for commercial flood policies (Note: Other flood losses are not modeled or reflected in estimates);Business interruption losses include direct and indirect losses for insured risks that experience physical loss;
• Demand surge.

Loss estimates do not reflect:

• Losses from scenarios in which the cyclone makes landfall at tropical storm strength;
• Losses resulting from the compromise of existing defenses (e.g., levees);
• Losses to uninsured properties;
• Losses to infrastructure;
• Losses from extra-contractual obligations;
• Losses from hazardous waste cleanup, vandalism or civil commotion whether directly or indirectly caused by the event;
• Other unmodeled losses;
• Losses for U.S. offshore assets and non-U.S. property (AIR estimates these losses separately).

As clients review their estimated losses from this storm, AIR recommends the following best practices to enhance the interpretation and communication of results:

• Always communicate the range of loss estimates produced by the “All simulated scenarios” event sets provided on the ALERT site, not just any single estimate or just the maximum;
• Always make sure the loss results include demand surge;
• Confirm that any storm surge losses from CLASIC/2 are based on correctly coding policies with respect to whether they cover such losses;
• Benchmark estimated losses against losses based on market share information and industry loss estimates when appropriate;
• Present any known issues with exposure data quality that might affect the loss results;
• Disclose any adjustments made to reflect non-modeled costs such as loss adjustment expenses, wind pool assessments, and inland flooding.

Pre-Landfall 3 | Downloads
Posting Date: September 11, 2008, 9:00:00 AM