Isaac and Catastrophe Bonds

As Hurricane Isaac hit the Gulf coast as a Category 1 storm, an interesting tidbit came across the wires regarding state-run property insurer Louisiana Citizens Property Insurance Corp.

In a press release, think tank R Street Institute noted that Pelican Re – a $125 million catastrophe bond issued by Louisiana Citizens – would be triggered if the storm produces more than $200 million in losses for the residual market entity.

If these conditions are met, Isaac would be the first storm ever to trigger a catastrophe bond issued by a state-run insurer.

Over at Artemis blog, there was more discussion:

Pelican Re does not cover pure flood damage so that is in its favour, however we believe storm surge caused by hurricane is covered and wind damage most certainly is. Louisiana Citizens has a great amount of exposure in the coastal areas where hurricane Isaac is currently making the greatest impact. As Pelican Re is an indemnity cat bond it is unlikely we will understand whether there has been an impact for some time as claims come in and losses to Louisiana Citizens are quantified.†

An updated paper on the residual market property plans from the Insurance Information Institute (I.I.I.) notes that a growing number of plans are accessing the capital markets as part of their reinsurance strategy, bolstering their ability to fund losses during hurricane season.

As well as Louisiana Citizens, Florida Citizens also accessed the capital markets in 2012, issuing a $750 million catastrophe bond – making it the largest single peril catastrophe bond in the history of the insurance-linked securities market.

They join a growing list that includes North Carolina’s Beach and Windstorm Plan and the Massachusetts Fair Plan.

For more information on the catastrophe bond market, check out this I.I.I. backgrounder on alternative risk-financing options.

Isaac Prompts Storm Surge Warning

Word from the National Hurricane Center (NHC) this morning is that Isaac – on the verge of hurricane status – poses a significant storm surge and freshwater flood threat to the northern Gulf coast.

The combination of a storm surge and the tide will cause normally dry areas near the coast to be flooded by rising waters. The water could reach the following depths above ground if the peak surge occurs at the time of high tide†¦Ã¢â‚¬ 

NHC is projecting potential storm surge levels as follows:

– Southeast Louisiana and Mississippi: 6 to 12 ft

– Alabama: 4 to 8 ft

– South-central Louisiana: 3 to 6 ft

– Florida Panhandle: 3 to 6ft

– Florida West Coast including Apalachee Bay: 1 to 3 ft

Remember a recent report from CoreLogic warned that over four million homes along the U.S. Atlantic and Gulf Coasts are at risk of hurricane-driven storm-surge damage, with more than $700 billion in total property exposure.

Along the Gulf coast, there are just under 1.8 million homes at risk, valued at nearly $200 billion, CoreLogic said.

The Insurance Information Institute (I.I.I.) reminds us that the top 10 most costly flood events in the U.S. ranked by National Flood Insurance Program (NFIP) payouts are associated with hurricanes or tropical storms.

Here’s a satellite animation of Isaac’s path through the Caribbean and into the eastern Gulf of Mexico, courtesy of NOAA’s GOES-13 satellite:

Eye On Isaac

Regardless of the exact track of Tropical Storm Isaac the next few days, you can’t help but notice there’s an extremely large band of tropical storm force winds associated with it.

In its 8am EDT advisory on Isaac today, the National Hurricane Center (NHC) reported that Isaac was a little stronger and noted that tropical storm force winds extend outward up to 185 miles (295 km) from its center.

This graphic from the NHC shows the potential reach of those tropical storm force winds:

Florida, Texas, Alabama, Georgia, Louisiana and Mississippi have some significant insured coastal property values, according to the Insurance Information Institute (I.I.I.).

Figures compiled by catastrophe modeler AIR Worldwide show the total value of insured coastal exposure in these six states was $3.8 trillion in 2007. That’s slightly  under half the $8.9 trillion value of insured coastal property in hurricane prone states as a whole.

But it’s not just coastal property that could feel Isaac’s effects. As Hurricane Irene demonstrated last year, the impact of a storm – winds, floods, and rains – can be felt far inland.

A post over at the Disaster Safety Blog (official blog of the Insurance Institute for Business & Home Safety) observes that the 20th anniversary of Hurricane Andrew serves as a reminder that it only takes one storm to cause significant damage.

Even if Isaac doesn’t make hurricane status,  there’s some useful information in I.I.I. hurricane fact files and market share by state.

Historical Hurricanes In Today’s Dollars

Ever wonder how much Hurricane Andrew would cost insurers if it struck today? A timely report from catastrophe risk management and modeling firm Karen Clarke & Co (KCC) has the answer.

According to KCC estimates, Hurricane Andrew would be three times as costly in 2012, causing close to $50 billion in insured losses today, compared to $15.5 billion when it occurred in 1992.

In fact, KCC has mapped out the landfall points of all 28 historical hurricanes that would cause $10 billion or more in insured losses today.

Here they are:

A couple of things jump out from this map and the report.

First, Florida has a target on its back. KCC notes that almost half – 13 out of 28 – of the historical hurricanes causing insured losses of $10 billion or more made landfall in Florida. Florida also has the largest loss – $125 billion from a repeat of the 1926 Great Miami Hurricane.

Another interesting fact from KCC is that there are three historical Northeast hurricanes that would cause $10 billion or larger in insured losses today versus just two in the Southeast.

The  upshot is  that the U.S. is likely to experience a $10 billion or larger insured loss one year out of four on average:

In other words, there’s a 25 percent chance of a $10 billion or larger loss this year. There’s almost a five percent chance of a $50 billion or larger loss.†

Insurance Journal has more on this story.

Here are some additional facts and statistics on hurricanes from the I.I.I.

Litigation Watch: From Big Tobacco To Food Manufacturers

Food manufacturers are the target of a wave of new lawsuits filed by consumers who allege the companies are mislabeling their products and ingredients.

The New York Times reports that lawyers of Big Tobacco lawsuits searching for the next big payday are now taking aim against food manufacturers. Some 25 cases have been filed against industry players like ConAgra Foods, PepsiCo, Heinz, General Mills and Chobani.

According to the NYT article, the tobacco lawyers are moving particularly aggressively and seeking billions of dollars in damages. For example, they have asked a federal court in California to halt ConAgra’s sales of Pam cooking spray, Swiss Miss cocoa products and some Hunt’s canned tomatoes.

In response, the food companies say the suits are without merit, frivolous  and being driven largely by the lawyers’ financial motivations.

The NYT writes that the lawyers are not the only ones who appear to be targeting the food industry. Recently, the Center for Science in the Public Interest has sued General Mills for using the term “natural† on its Nature Valley products.

A glance at the CSPI website reveals that Welch and  Splenda Essentials are also facing deceptive health claims on their products.

It’s worth noting that Ferrero, the manufacturers of Nutella recently agreed to pay $3 million to settle a class action lawsuit over misleading advertising that claimed the chocolate-hazelnut spread was healthy.

In an earlier blog post, we noted the potential liability risk facing food manufacturers, advertising agencies and ingredient manufacturers to name a few from obesity-related tort actions.

But this  new wave of lawsuits appears to be very specific. As the NYT says, the latest litigation
argues that food companies are violating specific rules about ingredients and labels and misleading consumers. This is why it’s so important that food companies comply with federal regulation.

Making Your Home More Disaster Resistant, One App at a Time

You may not be surprised to hear that more than half of American cell phone users now have smartphones, according to a report in the New York Daily News.

As Americans increasingly rely on their phones to do more than just make phone calls, there is a growing market for applications to enable those mobile lifestyles.

While many apps fall into the entertainment category, the Insurance Information Institute (I.I.I.) has just launched a free mobile disaster preparedness app that could protect your home and family.

Whether it’s a hurricane, wildfire, severe winter weather, earthquake, or other disaster, the I.I.I.’s “Know Your Plan† app for iPhone provides check lists and vital safety tips to help users prepare for catastrophe before disaster strikes.

“Know Your Plan† provides consumers with a library of preloaded checklists to learn about important property protection and preparedness steps. Customized lists can also be built from scratch.

Each checklist gives users options to set task completion dates, chart their progress and make additional notes for individual tasks.

One of the cool features of the app is that in the event of a disaster, users will be able to access a geotargeted emergency alert feed guiding them to up-to-the-minute information about local evacuation routes and other details about the disaster.

Also included are resources to help plan for an evacuation—including one for pets.

“Know Your Plan† is available in iTunes, or by searching “Insurance Information Institute† in the App store from any iPhone.

All property mitigation information was developed in partnership with the Insurance Institute for Business & Home Safety (IBHS).

“Know Your Plan† is the second in a series of apps created by the I.I.I. It follows Know Your Stuff – Home Inventory app, which is available for both iPhone and Android platforms.

CDC: Obesity Rates by State

At least one in five people is obese in every U.S. state, according to the Centers for Disease Control and Prevention (CDC).

Latest data from the CDC’s Behavioral Risk Factor Surveillance System show that obesity prevalence ranged from 20.7 percent in Colorado to a high of 34.9 percent in Mississippi in 2011. No state had a prevalence of obesity less than 20%.

Some 39 states had a prevalence of 25 percent or more and 12 of these states had a prevalence of 30 percent or more: Alabama, Arkansas, Indiana, Kentucky, Louisiana, Michigan, Mississippi, Missouri, Oklahoma, South Carolina, Texas, and West Virginia.

The South had the highest prevalence of obesity (29.5 percent), followed by the Midwest (29.0 percent), the Northeast (25.3 percent) and the West (24.3 percent).

Here’s the newly released CDC map showing obesity prevalence in each state in 2011:

Note: due to a new baseline established in 2011 for state obesity rates, the CDC cautions that estimates of obesity prevalence from 2011 forward cannot be compared to estimates from previous years.

A USA Today article notes that the CDC map is based on data in which people self-report their height and weight:

Because people tend to underreport their weight, the percentage of people who are obese is probably higher than the statistics indicate.†

A recent report from the Institute of Medicine (IOM) put the annual cost of treating obesity-related illness at $190.2 billion and  said there was  an urgent need to strengthen prevention efforts in the U.S.

Flood Insurance Imperative

A raised hurricane season forecast from NOAA and a timely reminder from the Insurance Information Institute (I.I.I.) on flood insurance are our topics du jour.

NOAA’s updated seasonal outlook now anticipates 12 to 17 named storms, up from nine to 15 initially forecast. If you consider that to-date we’ve already seen six named storms, that likely means there’s some significant activity to come during the season’s peak period from August through October.

In NOAA’s words:

We are increasing the likelihood of an above-normal season because storm-conducive wind patterns and warmer-than-normal sea surface temperatures are now in place in the Atlantic. These conditions are linked to the ongoing high activity era for Atlantic hurricanes that began in 1995. Also, strong early-season activity is generally indicative of a more active season.†

While El Nià ±o is a competing factor, NOAA doesn’t expect its influence until later in the season.

Inland flooding from Hurricane Irene and Tropical Storm Lee last year caused significant damage for many home and business owners.

A  timely reminder  from the I.I.I. urges homeowners to consider buying flood insurance. I.I.I. makes the important point that flood insurance covers your property against hurricane-caused storm surges as well as flooding generated by the torrential rains, which often accompanies tropical storms.

Standard homeowners and renters insurance policies do not cover flood damage, but flood coverage, is available in the form of a separate policy both from the National Flood Insurance Program (NFIP), and from a few private insurers.

Earlier this summer, after a series of short-term reauthorizations, Congress passed the Biggert-Waters Flood Insurance Reform Act of 2012 which renews the NFIP for five years.

A Huffington Post piece by Wharton School professors Erwann Michel-Kerjan and Howard Kunreuther discusses the significant reforms to the NFIP as a result of this new law.

Insurance Journal also has a great article by Lori Widmer titled What to Know about the New Flood Insurance Program.

Hurricane Andrew 20 Years On

As the fifth named storm of the 2012 Atlantic hurricane season made landfall last night on the Yucatan Peninsula, far from U.S. coastlines, we take you back to 1992 – a late-starting season that saw only six storms beginning with the historic Hurricane Andrew.

Here’s a satellite animation of Andrew’s path across Florida and into Louisiana, courtesy of NOAA Visualizations:

A new paper, Hurricane Andrew and Insurance: The Enduring Impact of an Historic Storm, authored by Lynne McChristian, Florida representative for the Insurance Information Institute (I.I.I.), points out that the cost of Hurricane Andrew is only part of its legacy:

The storm revealed that Florida’s vulnerability to hurricanes had been seriously underestimated, and that wakeup call was responsible for many of the insurance market changes that have occurred in coastal states over the last two decades.†

In its analysis, the paper outlines six key insurance market changes attributed to the costliest disaster in Florida history:

— More carefully managed coastal exposure.

— Larger role of government in insuring coastal risks.

— Introduction of hurricane deductibles.

— Greater use of reinsurance capital from around the world.

— The birth and rapid evolution of sophisticated catastrophe modeling.

— Strong support for strengthened building codes and the importance of enforcement of these codes, as well as enhanced understanding of the necessity of mitigation.

It’s worth noting that insurance claims payouts for Andrew totaled $15.5 billion at the time ($25 billion in 2011 dollars), and it remains the second costliest U.S. natural disaster, after Hurricane Katrina, which hit in 2005.

A repeat of Hurricane Andrew on its 20-year anniversary would produce more than twice the losses of the 1992 storm, as much as $57 billion in insured losses, according to estimates by AIR Worldwide Corp.

Check out  I.I.I. information  on hurricane and windstorm deductibles.

Thunderstorms Prompt Evacuations

Severe thunderstorms again took their toll this weekend as one fan was killed and nine injured as a result of lightning strikes following a NASCAR race at Pocono raceway on Sunday.

The Associated Press reports that multiple lightning strikes occurred behind the racetrack’s grandstands and outside one of the gates as fans were leaving after warnings to take cover from the lightning and rain as the race was postponed.

Earlier, on Saturday, an estimated 60,000 fans and 3,000 staff, artists and vendors were evacuated from the annual Lollapalooza music festival in Chicago in 38 minutes, ahead of a severe thunderstorm warning for the area.

Over at Wunderblog, Dr. Jeff Masters notes that NOAA’s Storm Prediction Center (SPC) logged over 150 reports of wind damage from the storm, with five of the thunderstorms containing winds in excess of hurricane force (74 mph).

The Chicago Tribune reports that many of the measures leading up to the evacuation had been outlined in a severe weather plan jointly developed by the city and Lollapalooza promoter C3 Presents. The festival resumed three hours later.

The Insurance Information Institute (I.I.I.)  notes  that in 2011 there were 26 lightning fatalities, three fewer than the 2010 total of 29 deaths and 11 fewer than the 10-year average of 37 fatalities, according to data from the National Oceanic and Atmospheric Administration (NOAA).

The I.I.I. offers tips and resources on lightning safety here.