Hurricane Michael caused severe damage in Florida

Storms

Series of typhoons in Japan and two direct hits in the USA

Summary of the 2018 tropical cyclone season

Following the record hurricane losses of 2017, tropical cyclones once again caused billions of dollars in damage across the globe in 2018. The most notable aspects of the 2018 tropical cyclone seasons across the northern hemisphere were the high number of typhoons that hit Japan and the two direct hurricane strikes on the US mainland. Of particular interest, especially for insurers, was the strong influence of natural climate oscillations on storm activity. Although the overall losses of around US$ 51bn were well below last year’s figure of US$ 220bn, they were still substantially above the long-term average of US$ 34bn (adjusted for increases in values). Global insured losses are estimated at around US$ 25bn, about a third of the 2017 figure but still twice the average (US$ 12bn).

05.12.2018

Eberhard Faust, Mark Bove

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30 November marks the official end of the hurricane season in the North Atlantic and in the eastern North Pacific, while storms can still occur in the Northwest Pacific up to the end of the year. It is already clear that the 2018 tropical storm season will be seen as statistically unusual: By the end of November, the number of named storms in each active ocean basin exceeded its long-term average. Similarly, the index for Accumulated Cyclone Energy (ACE) for all cyclones in the northern hemisphere as a measure of storm activity was 1.5 times greater than the 1981–2010 long-term average. The differences from the average storm energy in the Atlantic and western North Pacific were relatively slight (+24% and +19% respectively), but extremely high in the eastern North Pacific (+140%) and in the Indian Ocean (+77%). In terms of losses, this year’s tropical storm season in the northern hemisphere is the seventh-costliest of all time.

The making of a hurricane

Once again, the natural climate oscillation ENSO played a key role in tropical cyclone development (or lack thereof) in 2018, but it had a special impact this year: Sea surface temperatures rose significantly in the western part of the central tropical Pacific. This was caused by a variant of the ENSO phenomenon known as the “central Pacific El Niño” or “El Niño Modoki”. In these instances, the strongest warming occurs further west than with a typical El Niño event. In the Northwest Pacific, this produced two separate effects: There was greater storm activity than the long-term average and the altered circulation conditions made it more likely that storm tracks shifted further to the north, resulting in Japan being hit by a number of typhoon-strength storms. In the North Atlantic, by contrast, ENSO-neutral conditions in the eastern tropical Pacific made for a very active September and October.

The impact of the storm season in the ocean basins of the northern hemisphere

1. Tropical North Atlantic

Hurricane losses USA — More years with high US hurricane losses since the 1990s

Up to the end of August, the tropical storm season in the North Atlantic had been fairly benign. There had been five tropical storms up to then, just two of which reached hurricane force – i.e. wind speeds of at least 119 km/h (74 mph). But the first few days of September saw a flurry of storm activity. Four more storms formed within a few days, including Hurricane Florence, the first major hurricane of the season, which at times reached the second-highest wind intensity category with wind velocities in excess of 200 km/h. The slowly developing El Niño conditions, which normally suppress the development of Atlantic hurricanes, arrived too late for the 2018 season. A total of 15 tropical cyclones formed (long-term average 11.8), eight of which reached hurricane strength (6.4).

Overall losses from the year's tropical storms in the North Atlantic came to US$ 31bn, of which US$ 14bn was insured. Almost all of these losses were in the United States. It is notable that, measured in terms of GDP and therefore adjusted for increasing values, four of the last 15 years in the US have displayed a sharp upward spike. In 2018, this was less pronounced but still visible. Such spikes were far less frequent in the past. This observation tallies with the fact that the environmental parameters of the North Atlantic in the 1990s entered a phase that fuelled greater tropical storm activity.

Hurricane season 2018 — Two direct hits in USA: Hurricanes Florence and Michael

Hurricanes Michael and Florence accounted for the biggest portion of losses, with US$ 16bn and US$ 14bn respectively (insured US$ 10bn and US$ 4bn). With Hurricane Michael, which made landfall on the US mainland as the fourth-strongest storm on record with wind speeds of up to 250 km/h, the proportion of insured to non-insured losses reached 60%, due to the higher take-up of wind insurance coverage. Before Michael, there were no historical observations of such a severe hurricane making landfall along the central Florida panhandle. Many older buildings that did not meet the latest building standards were destroyed by either wind or coastal surge flooding.

In contrast, the proportion of insured losses with Hurricane Florence was just 40% because most of the damage in this storm was caused by flooding due to extreme rainfall. Flood risk is not normally covered under standard homeowners’ insurance policies in the US, with the result that there is low insurance penetration for flood damage. The National Flood Insurance Program (NFIP) is only available for participating communities, take-up rates are quite low, and the maximum amount insured is capped below the value of many homes. It would make sense to work towards higher flood insurance density in the US, given that studies have shown the influence of climate change on torrential rainfall events in the Gulf of Mexico.

2. Northwest Pacific

Typhoon season 2018 — More typhoon landfalls in Japan than usual in 2018

The year 2018 has shown high cyclone activity in the Northwest Pacific. The energy released by the storms over the entire season was approximately 20 % above the long-term average. A total of 16 typhoons formed (long-term average to 28 November: 15.8), of which 9 (8.3) reached wind strengths in the highest categories (3–5).

The development of the central Pacific El Niño produced circulation conditions that make cyclone landfalls in Japan more likely. This pattern has persisted since the summer, and has been observed in the past in extremely active typhoon seasons, for example in 2004 or 1966.

The strong influence of a variant of El Niño on this year’s storm activity in Japan is notable. The resulting extreme weather has created challenges that continue to significantly impact local communities as well as the insurance industry.

“In response, Munich Re’s experts are analysing the correlations involved in order to improve insurers’ risk management”, said Hermann Pohlchristoph, Board Member of Munich Re. “Through our long-standing presence in Japan and deep regional expertise, we are committed to working closely with our local clients, to help them address the challenges posed by the situation.”

Typhoon losses Japan — High losses from typhoons in Japan in 2018

A total of seven storms hit or skirted the islands of Japan. Five of the storms made landfall or came very close to land with typhoon strength and brought with them torrential rainfall. Overall losses for the storms totalled US$ 12bn, of which US$ 8bn was insured. Typhoon Jebi caused losses of US$ 8.5bn, of which US$ 6bn was insured, making it one of the most costly Japanese typhoons in history. In Japan, it was only the third year since 1980 that storm losses exceeded 2 per mille of GDP, which highlights the severity of this year’s storm activity.

The Philippines were hit by Super Typhoon Mangkhut (Ompong) with wind speeds of up to 270 km/h. Despite tens of thousands of people being evacuated, some 100 people lost their lives in this (highest) Category 5 tropical storm. Due to the low insurance density in the country, only a small fraction of the losses was insured. The lion’s share of the overall losses from Typhoon Mangkhut (US$ 4.5bn) was caused in Hong Kong and mainland China.

Losses from typhoons throughout the Northwest Pacific totalled US$ 17bn, of which US$ 9.5bn is likely to be insured.