Hurricane Ike

Pre-Landfall 4 | Summary
Posting Date: September 12, 2008, 9:30:00 AM

As of 11:00 am EDT, Hurricane Ike is located about 195 miles southeast of Galveston, Texas. Maximum sustained winds have risen to 105 mph and the storm is moving to the west-northwest at 12 mph. Ike has displayed an unusual eyewall replacement evolution, which has contributed to the storm’s very large size. Ike's radius of maximum winds is estimated at about 50 to 60 miles, which is extremely large. Hurricane force winds currently extend out to about 120 miles. Comparisons with Katrina are inevitable. Katrina's hurricane force winds also extended to near 120 miles, but with strong Category 3 winds near the center, compared to Ike's Category 2 wind speeds. The figure below shows that Katrina was a very well-developed, symmetric storm with a large and well-defined defined eye; Ike looks much more ragged and asymmetric.
While Ike and Katrina are of roughly equal size, a weaker, more asymmetrical Ike lacks Katrina’s well-defined eye. Source: NOAA/NASA Ike may become better organized today and indeed the National Hurricane Center (NHC) assigns a 29% probability to Ike's achieving Category 3 status before landfall—an upgrade that would require only a slight increase in wind speed. However, the strongest winds remain far removed from the center and any additional strengthening will be gradual. Ike is still following the southern periphery of a mid- to upper-level ridge over the southeastern U.S. Once it reaches a break in the ridge—forecast to occur in about 36 hours—Ike should turn northward and, ultimately, to the northeast. The NHC forecast track takes Ike to Galveston, Texas early tomorrow. However, because Ike is such a large storm, a significant expanse of the Texas coast will begin feeling its effects today. While wind damage may be geographically widespread as a result of Ike's imposing size, another significant concern is storm surge. The NHC expects Ike to produce a surge of up to 20 feet above normal tide levels to the east of landfall. This is especially unfortunate for Galveston, as surge heights can be significantly magnified by the gently-sloping bathymetry that characterizes that stretch of the coast. The National Weather Service has issued a dire warning: "Persons not heeding evacuation orders in single-family one- or two-story homes may face certain death. Many residences of average construction directly on the coast will be destroyed." The mayor of Galveston has issued a mandatory evacuation for the entire island on which Galveston is located. Mandatory evacuations are also in effect for Chambers, Matagorda and Brazoria counties. Evacuations in Harris County are limited to areas outside of Houston; officials there want to avoid the chaos on the roads that preceded the arrival of Hurricane Rita in 2005. Galveston constructed a sea-wall after the 1900 hurricane that destroyed most of the town. Today, it is about 10 miles in length, 17 feet high and 16 feet wide at its base. While subsequent storms have caused some damage in places, the wall has never been overtopped—even by Hurricane Alicia, which made a direct strike on Galveston and Houston as a Category 3 storm in 1983. Ike undoubtedly will challenge that record. Officials in Houston are also warning of flooding, as surge is pushed into Galveston Bay. In addition, glazing on Houston’s high-rise commercial buildings will be particularly vulnerable to wind-borne debris and high wind pressures at upper stories. Exposure in Houston’s Harris County alone accounts for roughly 70% of total exposure in Texas’ coastal counties. Although Ike is likely to track south and west of the heaviest concentrations of offshore platforms and rigs off the Louisiana coast, there are still significant assets in the storm's path. According to the Minerals Management Service, evacuations have shut 97 percent of Gulf crude production and 93 percent of natural gas output in the Gulf of Mexico. Wholesale gas prices shot up by some 30% yesterday as a result. Ike is also headed for the largest concentration of onshore oil refineries and petrochemical plants in the U.S. AIR’s industry exposure database includes a comprehensive database of industrial facilities broken down by building, equipment, inventory, contents and business interruption. AIR cautions clients about the potential for underinsurance. Based on recent insurance-to-value portfolio analyses representing tens of thousands of residential properties, AIR has identified Texas as an area of particular concern. While it is difficult to quantify potential underinsurance without analyzing specific portfolios, AIR has seen indications of underinsurance in individual Texas portfolios ranging from five to as much as 40 percent. It is important to note that accurate replacement values are essential for obtaining accurate catastrophe loss estimates. If a property's replacement value is understated by 40 percent the estimated catastrophe loss will be understated by at least that much. Widespread understatement of building values would lead to a significant underestimation of catastrophe risk. AIR estimates an expected (mean) insured industry loss to onshore U.S .property exposures from Hurricane Ike of $4 billion, with a 90% confidence interval of $150 million to $15 billion. The loss estimates in this posting are based on information in the National Hurricane Center’s 5:00 a.m. advisory on Friday, September 12. Note that the losses 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. This means that losses in excess of the largest posted loss are possible, but have a very low probability of occurrence. To review these extreme, low probability events, 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 reflects less intense events passing over regions of the coast that have relatively low property exposure. The higher end of the range reflects higher intensity events making a more direct impact on Houston. Second is the uncertainty around take-up rates for storm surge coverage for commercial exposures. Finally, 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 residential lines, estimates reflect AIR’s view that insurers will ultimately pay 10% of modeled storm surge damage as wind losses;
• 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 from flooding;
• Losses to uninsured properties;
• Losses from inland marine and pleasure boat coverages;
• 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 non-modeled 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 4 | Downloads
Posting Date: September 12, 2008, 9:30:00 AM