Dean's demise may prove only a temporary respite for insurers
London insurers braced for the worst last week upon news that Hurricane Dean was set to rip through Jamaica and then hit Mexico with winds travelling over 200 km per hour.
However, as the hurricane touched down in Mexico on Tuesday the brunt of the storm walloped the interior of the Yucatan peninsula, leaving much of the coastal exposure unscathed and accumulating less than £2bn in insured losses.
Milan Simic, managing director of AIR Worldwide Ltd. said in order for a hurricane to be considered significant it must amass a loss in the area of £5bn.
News of Dean’s demise sent waves of extreme relief across the board in the insurance market, particularly in the wake of one of the UK’s worst flood catastrophes that has so far cost insurers more than £3bn.
Dr Claire Souch, a senior director at Risk Management Solutions said: “Dean’s impact in Mexico will be similar to Hurricane Emily in 2005 which was a category 4 storm and caused around $250m of insured loss. If Dean had made landfall in the north of the Yucatan Peninsular coast, we could have been looking at a near repeat of Hurricane Wilma, which devastated the area and resulted in insured losses of some $1.8bn.”
But analysts are warning insurers not to get too comfortable, with 2007 forecasts all pointing towards a 72% probability the Atlantic hurricane season will be above average.
Based on current and projected client signals, Tropical Storm Risk (TSR) forecasts Atlantic basin tropical cyclone activity at 35% above the 1950 to 2006 norm.
With two months still to go before the end of hurricane season, the statistics are an ominous warning to insurers, still all too familiar with the devastating wrath of windstorms.
In 2005, hurricanes Katrina, Rita and Wilma dealt a crushing blow to the UK insurance industry. Lloyd’s claimed its losses resulting from the storms to be £2.9bn, which surpassed the £1.9bn loss the company reported in the aftermath of the 9/11 terrorist attacks.
The insurance industry claims invaluable lessons were learned in the aftermath of the 2005 hurricanes such as the re-examination of how it uses catastrophe loss models the formation of professional organizations such as, the International Society of Catastrophe Managers (ISCM).
The impact of such measures has yet to be seen but with predictions of 17 named storms, nine hurricanes and five intense hurricanes this season, there may be ample opportunity to put them to the test.