The National Oceanic and Atmospheric Administration (NOAA) issued its 2010 Atlantic hurricane season forecast today. NOAA forecasts a very active and possibly hyperactive season. They give an 85% chance of an above-normal season, a 10% chance of a near-normal season, and just a 5% chance of a below-normal season. NOAA predicts a 70% chance that there will be 14 - 23 named storms, 8 - 14 hurricanes, and 3 - 7 major hurricanes, with an Accumulated Cyclone Energy (ACE) in the 155% - 270% of normal range. If we take the midpoint of these numbers, NOAA is calling for 18.5 named storms, 11 hurricanes, 5 major hurricanes, and an ACE index 210% of normal. A season with an ACE index over 175% is considered "hyperactive." An average season has 10 named storms, 6 hurricanes, and 2 intense hurricanes. The forecasters note that in regards to the oil spill in the Gulf of Mexico,From Reuters:
"Historically, all above normal seasons have produced at least one named storm in the Gulf of Mexico, and 95% of those seasons have at least two named storms in the Gulf. Most of this activity (80%) occurs during August-October. However, 50% of above normal seasons have had at least one named storm in the region during June-July."
The forecasters cited the following main factors that will influence the coming season:
1) Expected above-average SSTs in the hurricane Main Development Region (MDR), from the Caribbean to the coast of Africa. SSTs in the MDR are currently at record levels, and the forecasters note that several climate models are predicting record or near-record SSTs during the peak portion of hurricane season (August - October.) "Two other instances of very warm SSTs have been observed in the MDR during February-April (1958 and 1969). In both years, the SST anomaly subsequently decreased by roughly 50% during the summer months. For 2010, although the record SST departures may well decrease somewhat, we still expect a continuation of above average SSTs throughout the Atlantic hurricane season. "
2) We are in an active period of hurricane activity that began in 1995, thanks to a natural decades-long cycle in hurricane activity called the Atlantic Multidecadal Oscillation (AMO). "During 1995-2009, some key aspects of the tropical multi-decadal signal within the MDR have included warmer than average SSTs, reduced vertical wind shear and weaker easterly trade winds, below-average sea-level pressure, and a configuration of the African easterly jet that is more conducive to hurricane development from tropical waves moving off the African coast. Many of these atmospheric features typically become evident during late April and May, as the atmosphere across the tropical Atlantic and Africa begins to transition into its summertime monsoon state."
3) There will either be La Niña or neutral conditions in the Equatorial Eastern Pacific. El Niño is gone, and it's demise will likely act to decrease wind shear over the tropical Atlantic, allowing more hurricanes to form. "La Niña contributes to reduced vertical wind shear over the western tropical Atlantic which, when combined with conditions associated with the ongoing high activity era and warm Atlantic SSTs, increases the probability of an exceptionally active Atlantic hurricane season (Bell and Chelliah 2006). NOAA's high-resolution CFS model indicates the development of La Niña-like circulation and precipitation anomalies during July."
How accurate are the NOAA seasonal hurricane forecasts?
A talk presented by NHC's Eric Blake at the 2010 29th Annual AMS Conference on Hurricanes and Tropical Meteorology studied the accuracy of NOAA's late May seasonal Atlantic hurricane forecasts, using the mid-point of the range given for the number of named storms, hurricanes, intense hurricanes, and ACE index. Over the past twelve years, a forecast made using climatology was in error, on average, by 3.6 named storms, 2.5 hurricanes, and 1.7 intense hurricanes. NOAA's May forecast was not significantly better than climatology for these quantities, with average errors of 3.5 named storms, 2.3 hurricanes, and 1.4 intense hurricanes. Only NOAA's May ACE forecast was significantly better than climatology, averaging 58 ACE units off, compared to the 74 for climatology. Using another way to measure skill, the Mean Squared Error, May NOAA forecasts for named storms, hurricanes, and intense hurricanes had a skill of between 5% and 21% over a climatology forecast (Figure 2). Not surprisingly, NOAA's August forecasts were much better than the May forecasts, and did significantly better than a climatology forecast.Figure 1. Mean absolute error for the May and August NOAA seasonal hurricane forecasts (1999 - 2009 for May, 1998 - 2009 for August), and for forecasts made using climatology from the past five years. A forecast made using climatology was in error, on average, by 3.6 named storms, 2.5 hurricanes, and 1.7 intense hurricanes. NOAA's May forecast was not significantly better than climatology for these quantities, with average errors of 3.5 named storms, 2.3 hurricanes, and 1.4 intense hurricanes. Only NOAA's May ACE forecast was significantly better than climatology, averaging 58 ACE units off, compared to the 74 for climatology. Image credit: Verification of 12 years of NOAA seasonal hurricane forecasts, National Hurricane Center.
How do NOAA's seasonal hurricane forecasts compare to CSU and TSR?
Two other major seasonal hurricane forecasts will be released next week....MORE
Disaster derivs in demand as US wind season looms
Imminent U.S. hurricane season prompts more ILW trading
* High cat losses in Q1 leave companies without enough cover
* ILW prices increase by 10-15 percent
* Busy cat bond market leaves no free additional capacity
By Sarah Hills
LONDON, May 27 (Reuters) - Catastrophe derivative prices and trading have increased sharply in all U.S. natural peril risks in the run-up to the start of the hurricane season, making it more dfficult for reinsurance companies to hedge against a repeat of Hurricane Katrina, brokers say.
Demand for industry-loss warranties (ILWs) and derivatives, used by reinsurers such as Munich Re (MUVGn.DE), Swiss Re (RUKN.VX) and Credit Suisse (CSGN.VX) to cover their losses from natural disasters, remains brisk in the run-up to the six-month long North Atlantic storm season, brokers said.
But a price decline in the ILW market in the last six months has reversed as buyers look to protect themselves against possible further catastrophe losses following the active first and second quarters in 2010.
ILWs are reinsurance contracts, typically covering a calendar year, that pay out according to the total loss to the insurance industry of a hurricane or earthquake, rather than the buyer's own losses. Similar derivatives are traded on an exchange or over-the-counter.
"Events in Chile, Australia and offshore have impacted upon (re)insurers' appetite to retain loss and so they are looking to enhance those reinsurance protections already in place," said Larry Rothstein, vice president, analytics and capital markets for reinsurance brokerage Guy Carpenter's ILW Desk.
He said a sharp increase in traded volumes had resulted in terms hardening by more than 10 percent after what has been a sustained period of softening since early 2009.
Derivatives such as IFEX's Event-Linked Futures (ELF), traded by the Chicago Climate Futures Exchange, have also increased in price. An ELF, the capital markets equivalent of an ILW, paying out on a $10 billion North America hurricane event currently carries a premium of $46, compared with $39.25 in April....MORE
