AIR Sees Possible $50 Billion European Windstorm Insured Losses

Boston-based consultant and catastrophe risk modeler AIR Worldwide Corporation has released a new analysis of European extratropical cyclones, which confirms that Europe could experience a winter storm resulting in insured losses in excess of €40 billion ($50.6 billion).

“For an extratropical cyclone to produce a loss greater than we have experienced to date, it takes the right combination of just three storm characteristics: size, intensity, and path,” explained Dr. Peter Dailey, meteorologist and director of atmospheric science at AIR. “The largest historical losses have resulted from storms with extremes incorporating one or two of these ingredients. At some point, we will experience a storm where all three will coincide.”

The bulletin notes that “Windstorm Daria, which caused damage across six countries in 1990, was one of the largest European windstorms in recent history. Using its extratropical cyclone model for Europe, AIR estimates that if Daria were to recur today, it would cost insurers more than €10 billion [$12.66 billion].”

“Daria was large, but it is not the most intense storm in the historical record,” Dr. Dailey continued. “A storm that impacted Greenland and Iceland in December 1986 was both large and much more intense. The 1986 storm had the lowest central pressure ever recorded for an extratropical cyclone in the Northern Hemisphere but remains largely unknown because it failed to reach the population centers of continental Europe.”

The AIR study determined that had the jet stream been in a somewhat different position at the time, the storm could have taken a path over Europe’s highest density of insured properties. “An extratropical cyclone that is as large as Daria, intense as the December 1986 storm and follows a path over Europe’s highest density of insured properties is entirely possible from a meteorological standpoint,” Dr. Dailey confirmed. “Our analysis shows losses from such a storm could exceed EUR 40 billion.”

“Many insurers were surprised by the $41 billion insured loss resulting from Hurricane Katrina, despite the fact that the AIR U.S. hurricane model already contained hundreds of scenarios with higher losses,” indicated Yorn Tatge, managing director of AIR Worldwide GmbH. “Similarly, European insurers need to ensure they are prepared for winter storm losses far beyond those experienced to date. Winter storms are by far the greatest threat for Europe in terms of insured losses. It’s not a question of if, but rather of when.”