According to a recent paper by Karen Clark & Company (KCC), the catastrophe risk modeller, a 100-year return period hurricane has the potential to generate more than $100 billion in insured losses in New York.
KCC also highlighted how there is nearly $9 trillion of insured value in the state of New York, including residential and commercial properties, with a staggering $6 trillion of that concentrated in coastal counties alone.
Whilst the Northeast has not experienced a major hurricane for many years, a single event could still wind up causing significant losses given the state’s high population and exposure density.
KCC outlined that since 1850, eleven hurricanes have impacted New York, with the most notable of which being the Great New England Hurricane of 1938.
“On September 21, 1938, the Great New England Hurricane made landfall in Bellport, NY as a Category 3 storm with estimated maximum sustained winds of 121 mph. The storm brought more than 15 feet of storm surge to Long Island and continued to track inland, causing damage well into Canada before transitioning to a post-tropical cyclone,” KCC explained.
According to estimates from KCC, if this storm were to occur today, it would result in roughly $20.5 billion in insured losses, the highest among the eleven events, and the second highest in total losses at $50 billion.
While at the same time, Hurricane Donna is projected to cause the largest total losses at $61.1 billion, but only $4.6 billion in insured losses.
“The hurricane risk in New York—and along the entire US coastline—is changing due to the warming global climate. The current scientific consensus is that warming sea-surface temperatures are causing increases in hurricane intensity. This translates directly to a general shift toward stronger hurricanes that could threaten the Northeast,” KCC said.
The cat modeller noted that a 100-year return period hurricane in the region would be a Category 3 hurricane with maximum winds of 121 mph, similar to the Great New England Hurricane, while a lower probability event, such as a 250-year return period hurricane, would be more intense—a borderline Category 3/4 storm.
Further figures shown in KCC’s report show that a landfall close to Rockaway Beach, however, is the worst-case scenario for New York. A 100-year event is expected to result in over $100 billion in insured losses, while a 250-year event is expected to result in over $200 billion.
It’s worth considering the potential effects on the catastrophe bond and insurance-linked securities (ILS) markets of an insured hurricane loss of more than $200 billion. ILS structures across the entire suite of products the market uses would suffer significant losses as a result of such an event. However, losses in the reinsurance and retrocession markets as a whole would be even more substantial.
Moving beyond hurricanes, New York also faces considerable impacts from both severe convective storms and winter storms, which together generate almost $1 billion in average annual property losses in the state.
“Exposure to catastrophe losses presents some regulatory challenges. Ensuring that property insurance remains both available and affordable—while also preserving the insurer surplus necessary to withstand the next major event— requires consideration of many factors and a forward-looking approach. This paper examines key issues for regulators, including the use of catastrophe models in rate development, the pitfalls of relying solely on historical losses, and strategies for reducing future catastrophe impacts,” KCC added.
