Lessons from a quiet storm season
The 2009 hurricane season officially ends today with just nine named storms having developed in the Atlantic basin, a nice break after the disastrous 2008 season that sent Hurricane Ike barreling into Galveston Island. Here are four things we know after six months of tracking the tropics, and one thing we don’t.
What we knowEl Niño matters: Although an El Niño occurs in the Pacific Ocean, where tropical sea temperatures are abnormally high, the climate pattern tends to increase wind shear over the Atlantic basin. That’s exactly what happened this season, and it’s no coincidence that two of the quietest seasons in recent history (2006, with 10 named storms, and 2009) developed under the influence of El Niño.
Late starts are rare in satellite era This season was notable for its late start, with the first named system, Tropical Storm Ana, not developing until Aug. 12. It was the latest start since 1992, when Hurricane Andrew formed on Aug. 16 before spinning into a Category 5 storm. With satellites now monitoring the tropics 24 hours a day, hurricane scientists no longer miss early season systems that spin up briefly into tropical storms before dissipating.
Modern government moves slowly A year after Galveston’s Great Storm in 1900, the city had hired engineers to design a seawall, and construction began in 1902. Two years later, the city began bringing in 16 million cubic yards of sand to raise the island. Today, more than a year after Hurricane Ike, local governments are just getting around to forming a six-county “surge-suppression zone” to study whether to do something about catastrophic storm surges like the one generated by Ike.
2005 was an anomaly Four years ago, some hurricane scientists wondered whether the 2005 Atlantic season, with its 28 named storms, including famously intense Katrina, Rita and Wilma, was the new normal for the Atlantic basin in a warming world. But since then, the Atlantic basin has averaged 13 named storms a year, and global activity has been at its lowest level since the satellite era began 30 years ago.
What we don't know...MORE
Clariden Benefits as Cat Bonds Gain on Lack of Storms
Catastrophe bond investors including Credit Suisse Group AG’sClariden Leu won the gamble on the 2009 hurricane season after the U.S. escaped major storm damage and the securities posted a record gain.
The price of catastrophe bonds climbed in 19 straight weeks through Nov. 13, the longest streak of gains since Swiss Re Capital Markets began tracking the data in 2002. The price rose 6.8 percent from the end of May to Nov. 20, beating the 2003 hurricane-season record of a 1.5 percent gain in the Swiss Re Cat Bond Price Return Index.
“The mild 2009 storm season was a relief,” said Christian Bruns, who co-manages about $1 billion in insurance-linked investments at Clariden, the Zurich-based private bank. “Now investors can be happy about nice returns.”
Three hurricanes, Bill, Fred and Ida, formed in the Atlantic during this year’s storm season, which began June 1 and ended yesterday. Bill and Fred missed the U.S., and Ida weakened to a tropical storm before hitting Alabama last month. A major disaster could cause catastrophe bond investors to lose their principal to the insurance companies that issue the securities.
“The people who are at risk are breathing a sigh of relief,” said Peter Nakada, a managing director at Risk Management Solutions Inc., which builds models to predict hurricane damage. “It seems like a seller’s market.”
Shelter from Storms
The lack of storms marked the first time in three years that no hurricanes struck the U.S. mainland. The season compares with a more active 2008, when Hurricanes Ike and Gustav slammed into the Gulf Coast and contributed to $27 billion in catastrophic losses for insurers, the costliest year since 2005. Ike was the third most expensive U.S. storm in history, costing $12.5 billion, according to the Insurance Information Institute.
Swiss Re Capital Markets, which issues and underwrites the securities, expects increased investor interest through the end of the year, said Managing Director Judy Klugman.
Investors in Zurich Financial Services AG’s Kamp Re 2005 Ltd. bond were the first cat bond buyers to lose money, after Hurricane Katrina hit the Gulf Coast that year. Pfaeffikon, Switzerland-based Glacier Reinsurance AG last month said investors in part of its Nelson Re cat bond “may suffer a significant loss” on mounting claims from Hurricane Ike.
Insurers sell the bonds as an alternative to buying reinsurance. The bonds lock in capital in case a catastrophe hits and typically last for at least two years, while reinsurance is renewed annually.
Insurers had to promise interest rates as high as 17 percentage points above benchmark rates earlier this year to match the returns available to investors buying corporate debt. Yields on weather-linked securities have since fallen, with the October sale of bonds by MultiCat Mexico paying as much as 11.5 percentage points above three-month Treasury bills....MORE