Boston’s New Big Dig: How does U.S. winter storm risk impact your portfolio?
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This document discusses the risks of winter storms to U.S. and Canadian portfolios. It notes that recent winters in 2013-2014 and 2014-2015 caused billions in insured losses due to numerous snow and cold temperature records. Freezing temperatures, snow, ice, and wind are the major perils. Climate change may impact winter storm risk by weakening jet streams and increasing volatility in cold air outbreaks. Key questions remain around accurately assessing this risk and potential impacts of a changing climate.
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Boston’s New Big Dig: How does U.S. winter storm risk impact your portfolio?
- 1. BOSTON’S NEW BIG DIG: HOW DOES U.S. WINTER STORM RISK IMPACT YOUR PORTFOLIO Robert Muir-Wood, Chief Research Officer Matt Nielsen, Senior Director, Global Governmental and Regulatory Affairs Jeff Waters, Manager, Model Product Strategy
- 2. 2Copyright © 2015 Risk Management Solutions, Inc. All Rights Reserved. October 13, 2015 Agenda 2014-2015 U.S. Winters U.S. and Canada Winter Storm Risk Key Questions and On-going Issues
- 3. 3Copyright © 2015 Risk Management Solutions, Inc. All Rights Reserved. October 13, 2015 Presenters Robert Muir-Wood, Chief Research Officer Matt Nielsen, Senior Director, Global Governmental and Regulatory Affairs Jeff Waters, Manager, Model Product Strategy
- 4. 4Copyright © 2015 Risk Management Solutions, Inc. All Rights Reserved. October 13, 2015 2014-2015 U.S. WINTERS
- 5. 5Copyright © 2015 Risk Management Solutions, Inc. All Rights Reserved. October 13, 2015 2014-2015 U.S. WINTERS AT A GLANCE Many causes of damage: • Roof collapse • Frozen pipes • Business interruption 2013-2014 • 13 PCS events • $2.3 billion in insured losses • Nearly 75% caused by one event (Jan. 5-8) 2014-2015 • 8 PCS events • $2.2 billion in insured losses • Numerous snowfall and temperature records 2014-2015 U.S. WINTERS AT A GLANCE
- 6. 6Copyright © 2015 Risk Management Solutions, Inc. All Rights Reserved. October 13, 2015Copyright © 2015 Risk Management Solutions, Inc. Colder, Arctic air -12 -8 -6 -3 WHY HAVE THEY BEEN SO ACTIVE? • Neutral ENSO conditions • Jet stream dipped into the central and eastern parts of the U.S., and stayed there • Allowed prolonged periods of arctic air to settle into the region
- 7. 7Copyright © 2015 Risk Management Solutions, Inc. All Rights Reserved. October 13, 2015Copyright © 2015 Risk Management Solutions, Inc. WHAT DOES THE POLAR VORTEX HAVE TO DO WITH IT?• Polar vortex is not a storm, but a flow of Arctic winds around the pole • Helps reinforce the “waviness” of the polar jet stream • Led to the resulting cold- air outbreaks in 2013-2014 and 2014-2015
- 8. 8Copyright © 2015 Risk Management Solutions, Inc. All Rights Reserved. October 13, 2015 $- $1 $2 $3 $4 $5 $6 $7 $8 Billions U.S. Insured Losses due to Winter Storms – 1983-2015 (2015 USD) HOW DO RECENT SEASONS COMPARE TO THOSE IN THE PAST? Losses from recent seasons are in line with long-term average annual winter storm losses Also in line with modeled return periods: ~3 yrs. Much higher losses during parts of the 1980s and 1990s Lower losses during the 2000s RMS AAL Source: PCS, RMS
- 9. 9Copyright © 2015 Risk Management Solutions, Inc. All Rights Reserved. October 13, 2015 The 1983 Freeze Outbreak lasted nearly two weeks and affected more than 40 states Recent events have caused material losses, but they could have been worse Return Period 57 22 10 9 9 8 5 5 4 $0 $2 $4 $6 $8 2015 Feb. 16-22 Event 2014 "Polar Vortex" Event 1996 Ohio Valley Snowstorm 1992 Nor'easter 1994 Major Winterstorm 1989 Freeze Outbreak 1985 Freeze Outbreak 1993 Storm of the Century 1983 Freeze Outbreak Billions Insured Losses: Select Historical Events 1983-2015 (2015 USD) HOW DO RECENT SEASONS COMPARE TO THOSE IN THE PAST?
- 10. 10Copyright © 2015 Risk Management Solutions, Inc. All Rights Reserved. October 13, 2015 U.S. AND CANADA WINTER STORM RISK
- 11. 11Copyright © 2015 Risk Management Solutions, Inc. All Rights Reserved. October 13, 2015Copyright © 2015 Risk Management Solutions, Inc. WINTER STORM RISK OVERVIEW § Contributes to a material percentage of overall U.S. and Canada AAL § U.S. $2.3 billion USD § Canada $400 million CAD § Caused more than $21 billion in insured losses since 2000 § Large losses are driven by a single event or a combination of events throughout the season § Most loss is retained by primary insurers U.S. winter storm AAL comparable to earthquake and flood Canada winter storm AAL comparable to SCS and 1/3 of all- peril AAL Sources: RMS, NFIP, PCS
- 12. 12Copyright © 2015 Risk Management Solutions, Inc. All Rights Reserved. October 13, 2015 Dominant winter storm perils by region Material driver of catastrophe risk in the Northeast and Pacific Northwest Lake Effect Snowstorms Freeze Snow Wind Snow Ice Ice Snow Wind Freeze Snow Wind Ice
- 13. 13Copyright © 2015 Risk Management Solutions, Inc. All Rights Reserved. October 13, 2015Copyright © 2015 Risk Management Solutions, Inc. WINTER STORM RISK BY PERILDrivers of Risk • U.S. - freeze • Canada - ice Drivers of Damage • Freeze: pipe burst, agriculture • Snow: roof collapse, ice damming • Ice: tree fall, power outage • Wind: tree fall, roof damage 18% 17% 31% 34% AAL 17% 21% 18% 44% 100-year 20% 22% 17% 41% 250-year Snow Ice Wind Freeze U.S.
- 14. 14Copyright © 2015 Risk Management Solutions, Inc. All Rights Reserved. October 13, 2015Copyright © 2015 Risk Management Solutions, Inc. WINTERSTORM RISK BY PERILDrivers of Risk • U.S. - freeze • Canada - ice Drivers of Damage • Freeze: pipe burst, agriculture • Snow: roof collapse, ice damming • Ice: tree fall, power outage • Wind: tree fall, roof damage 18% 17% 31% 34% AAL 17% 21% 18% 44% 100-year 20% 22% 17% 41% 250-year Snow Ice Wind Freeze 19% 42% 30% 9% 15% 55% 21% 9% 12% 66% 15% 7% Snow Ice Wind Freeze U.S. Canada
- 15. 15Copyright © 2015 Risk Management Solutions, Inc. All Rights Reserved. October 13, 2015Copyright © 2015 Risk Management Solutions, Inc. WINTER STORM RISK INDICESSnowfall and absolute temperature cannot be used directly for hazard determination n Does -15F cause the same damage everywhere? n Building code guidelines different n Create a Freeze Index - departure from 2-year return period n Create a Snow Index - departure from 25-year return period NY, NY -15F -15F Dallas, TX
- 16. 16Copyright © 2015 Risk Management Solutions, Inc. All Rights Reserved. October 13, 2015 KEY QUESTIONS AND ONGOING ISSUES 16
- 17. 17Copyright © 2015 Risk Management Solutions, Inc. All Rights Reserved. October 13, 2015Copyright © 2015 Risk Management Solutions, Inc. POTENTIAL IMPACT OF CLIMATE CHANGE ON WINTER STORM RISK In a warming climate, the jet stream winds may weaken, sending colder air plunging southward This may lead to higher volatility in cold air outbreaks
- 18. 18Copyright © 2015 Risk Management Solutions, Inc. All Rights Reserved. October 13, 2015 18Copyright © 2015 Risk Management Solutions, Inc. All Rights Reserved. October 13, 2015 Q + A
- 19. ©2015 Risk Management Solutions, Inc. RMS and the RMS logo are registered trademarks of Risk Management Solutions, Inc. All other trademarks are property of their respective owners.
Editor's Notes
- Lloyd Dixon. His expertise includes insurance, compensation, and liability issues. He has also been lead investigator of a number of studies addressing environmental and natural resource issues. Recent studies include analysis of the wind and flood insurance markets, asbestos litigation, the California workers' compensation insurance market, and the contribution of hedge funds to systemic financial risk. Dixon received his B.S. in general engineering and B.A. in political science from Stanford University and his Ph.D. in economics from the University of California, Berkeley. Dr. Gordon Woo is the chief architect of the RMS terrorism risk model. For his development efforts on the model he was named one of the 100 most influential people in finance by Treasury & Risk magazine. He is a regular lecturer on terrorism risk at the NATO Center of Excellence for the Defense against Terrorism in Ankara, Turkey. In September 2013, he testified before Congress on the applications of terrorism risk modeling. Dr. Woo is the author of the book, 'Calculating Catastrophe', which was published for the 10th anniversary of 9/11.
- 2014 Not nearly as many records broken – not unusual from a severity standpoint What was unusual was the persistence of below normal and well-below temperatures during this period February 2015 23 states had top 10 coldest Februaries Coldest Feb. on record for Buffalo, Cleveland and Chicago Snowiest month on record for Boston (64.8”) 2015 Boston breaks the all-time snowfall record of XXXX, receiving over 118” of snow It’s all relative though Globally, the only record cold temperature anomaly was centered over the great lakes Although most of the eastern N. America experienced below average, must of the globe experienced temps that were near or above average from Dec. 2013 – Feb. 2014 8th warmest global temp on record Damages Wind, roof collapse due to snow/ice, frozen pipes, flooding from snowmelt, auto damages due to fallen trees, BI
- December 2013-March 2014 Ridging near the west coast of North America leading to a deep trough from Northern Canada into the central and eastern states Allowed for arctic air to be transported south into the central and eastern U.S., particularly in the northern parts of the midwest/great plains (MI, MN, WI, ND) Ridge was deepest over Ontario and the Upper Great Lakes ENSO Neutral ENSO conditions make parts of the eastern U.S. more susceptible to high-latitude blocking. Caused by ridging over greenland (-NAO) or similar blocking along the west coast of north America (+PNA)
- Separated from warm air via the polar jet stream Its location and movement depends on strength of winds and jet stream December 2013-March 2014 Ridging near the west coast of North America leading to a deep trough from Northern Canada into the central and eastern states Allowed for arctic air to be transported south into the central and eastern U.S., particularly in the northern parts of the midwest/great plains (MI, MN, WI, ND) Ridge was deepest over Ontario and the Upper Great Lakes ENSO Neutral ENSO conditions make parts of the eastern U.S. more susceptible to high-latitude blocking. Caused by ridging over greenland (-NAO) or similar blocking along the west coast of north America (+PNA)
- The black line shows the running 5-year average since 1983 Were winters more extreme then? Or is the industry better prepared?
- While not listed here, the 1998 Ice Storm caused over $3 BN in loss to Canada US ILC RPs 1983 Freeze – 57 1993 SotC – 22 1985 Freeze – 10 1989 Freeze – 9 1994 Winterstorm – 9 1992 Nor’easter – 8 1996 Ohio Valley – 5 2014 Polar Vortex – 5