Lloyd’s Analyzes Europe’s Windstorms

April 16, 2008

“Winter storms in Europe are like London buses,” says an article on the Lloyd’s web site (www.lloyds.com) – “You don’t see any for a while and then along come two or three, one behind the other.” The four month European winter storm season, which officially ended on March 31, followed a similar pattern.

In January winter storm Paula swept across parts of Poland, Germany, Austria and Scandinavia, with 200km/h (120 mph) gusts of wind, which caused heavy losses – around €90 million ($143 million) – in mountainous areas of Austria. A week later, windstorm Resi delivered gusting winds of 150 km/h (90 mph) to the UK and Scandinavia. High winds closed ports, roads and bridges, and disrupted power to thousands of homes in Norway and Sweden.

In March windstorm Emma cut a swathe across central Europe, including Germany, Austria, the Czech Republic, Belgium, the Netherlands, Switzerland and the UK. “Catastrophe model consultants AIR Worldwide Corporation estimated that Emma caused insured losses of between €750 million [$1.2 billion] and €1.3 billion [$2.066 billion].

“The storm brought heavy rain and hurricane-force winds, which caused significant damage to residential buildings. It also disrupted road, rail, and air traffic, and prompted flood alerts in the Netherlands. Fifteen people were killed.”

Emma was followed in rapid succession by windstorms Johanna and Kirsten.

Lloyd’s also reminded everyone of the two storms – Lothar and Martin – which struck across France on Dec. 26, 1999, causing €8 billion ($12.71 billion] in insured losses in France alone. The storms were separated by just 36 hours.

In December 1989 and January 1990, a series of storms culminated in windstorm Daria, which caused huge losses in Europe. One month later, in late February, storms Vivian and Wiebke hit in a time frame similar to Lothar and Martin.

“In a white paper on the subject, AIR Worldwide asks whether the apparent clustering of European winter storms is real (i.e. statistically significant) and if so, what causes it,” Lloyd’s notes. “It says that different areas of research related to the jet stream, the mid-latitude band of very strong winds that blows at an altitude six miles above the North Atlantic, appear to support the theory of extra-tropical cyclone (ETC) clustering in Europe.

“Understanding the phenomenon of storm clustering is crucial for catastrophe models. Like other catastrophe risk consultants, AIR says it is using research into clustering to enhance its European windstorm models.” AIR’s managing director Milan Simic indicated that the “models need to account for spatial and temporal clustering in order to provide an accurate estimate of annual aggregate risk.”

He emphasized that the “issue is very important for all stakeholders in the risk transfer food chain. Reinsurance contracts are typically written on an annual basis and depending on the specifics of the terms and the structure, multiple event seasons impacting a contract can have serious implications.”

Paul Nunn, head of Exposure Management at Lloyd’s noted that better representation of temporal clustering in catastrophe models could shape the evolution of insurance risk transfer to capital markets investors. “It will be interesting to see if future development trends in insurance linked securities and index-based risk transfer mechanisms encourage more mobile deployment of ‘seasonal’ capital, where investors work capital harder by shifting it from region to region.”

Source: Lloyd’s

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