AIR Currents OctOBER 22 2013 Special Edition What the Top 5 Historical U.S. Hurricanes and Earthquakes Would Cost Today Many historical disasters, were they to calculated for the top five historical U.S. The most devastating historical happen today, would cause far more hurricanes and earthquakes, based on earthquakes happened not in California insured loss than any recent event. Only today’s replacement values. but in the central U.S., where Missouri, Hurricane Katrina, at insured losses of Tennessee, and Kentucky come together. USD 45 billion, would make it into the The most expensive hurricane would The earthquake “triplet” that struck top five historical hurricanes; Sandy, at be the Miami Hurricane of 1926. This the New Madrid Seismic Zone in the over USD 18 billion, doesn’t even make Category 4 storm devastated Miami, winter of 1811-1812 occurred when the the top 10. Only one earthquake in the the Florida Panhandle, and Alabama. It region was sparsely populated. Today, last 100 years—the 1994 Northridge is estimated that between 25,000 and a recurrence of this event would cause earthquake—would make the top five 50,000 people in the Miami area were insured losses in excess of USD 110 billion. list for that peril. left homeless (out of a population of about 100,000), and nearly 370 people Of course, as high as these losses are, Using AIR’s robust simulation were killed. If this event happened today, they do not represent the worst case methodology and detailed industry AIR estimates that insured losses would scenarios. exposure databases, insured losses were reach USD 128 billion. Top Five U.S. Hurricanes and Earthquakes by Insured Loss, Based on Current Exposures 140 Hurricane* 120 Earthquake** *Modeled wind and storm surge losses to onshore 100 property, contents, and time element coverages for residential, mobile home, commercial, and auto 80 exposures in the U.S. as of December 31, 2012. Losses include demand surge. 60 **Modeled shake and fire-following losses to onshore property, contents, and time element coverages for 40 residential, mobile home, commercial, and auto Loss (USD Billions) exposures in the U.S. as of December 31, 2012. Losses 20 include demand surge. 0 1812 New 1906 San Andrew Katrina 1926Hurricane Miami Hurricane Hurricane Madrid, MO Francisco, CA 1992 Hurricane 2005 Hurricane 1886 Charleston, SC 1947 Fort Lauderdale 1994 Northridge, CA 1928 Great Okeechobee Event 1838 San Francisco, CA Contents PCI Annual Meeting WHAT THE TOP FIVE HISTORICAL U.S. HURRICANES AND 1 EARTHQUAKES WOULD COST TODAY UNDERSTANDING THE CLOUD 2 THE COASTLINE AT RISK 3 NORTHEAST U.S. HURRICANE RISK 4 Understanding the Cloud Cloud computing is the latest technology Here’s the bird’s-eye view of the pros and cons of cloud deployment: trend dominating the consumer space, and the language of cloud computing is On-Premises quickly entering the corporate lexicon. PROS CONS According to technology research firm – Data remains inside the corporate – I nfrastructure and IT support costs Gartner, “Consumer adoption of cloud firewall – Hardware acquisition hurdles services will continue to increase in the – Minimal security and privacy risks – Hard to adjust resources as demand coming years, with one-third of personal – Minimal latency and bandwidth issues grows or shrinks data being stored in the cloud by 2016.” The insurance industry, however, seems to be responding more cautiously. In Public Cloud PROS CONS a recent AIR survey, 65% of our clients indicated that their organization would – Ease of acquiring needed compute – Data security and privacy concerns not be moving their data into the cloud capacity – Potential stability and availability in the near future. – Reduced up-front investment issues (service outage) – Scalability – quickly add additional – Still requires internal IT While this figure may well change over resources as needed (configuration and support) time, AIR has chosen a technology – Mobility – access the software from – Bandwidth issues – getting data in strategy that accommodates our clients’ any computer and out demand for choice. Touchstone®, AIR’s next generation modeling platform, can Private Cloud be deployed on premises, in the cloud, PROS CONS or fully integrated into existing business – All the Pros of the public cloud plus – Potential stability and availability applications. – Cloud optimized for cat modeling issues (service outage) – AIR supports both software and – Data security and privacy concerns But what about cost? infrastructure – Bandwidth – getting data in and Cloud-based deployments are often – Enables big data analytics out portrayed as cheaper relative to on- premises deployments. Using pricing Furthermore, if the model provider By offering companies the choice of sheets from major hardware vendors overlays a “pay-per-analysis” business how and where they want to deploy and public cloud providers, AIR model, the costs can escalate quickly, their risk analytics—and being open and estimates that, for one representative forcing the model user to think about the transparent about the costs and benefits configuration, the annual cost of a cost/benefit ratio of every model run. In of each option—AIR is helping clients (public) cloud deployment can be as an environment where companies are own the risk in a cost-effective manner much as 60% higher than on-premises looking to do more modeling rather than most appropriate for them today, and deployment. less, no one should have to worry about partnering directly with them as their the incremental cost of every analysis. needs evolve over time. AIR is committed to helping establish a catastrophe modeling environment that works best for your organization. 2 The Coastline at Risk While the scientific debate over the STATE TOTAL COASTAL effects of global warming on the (USD COUNTIES PERCENT STAte BILLIONS) (USD BILLIONS) COASTAL frequency of U.S. hurricane landfalls Alabama 917.8 118.2 13% remains inconclusive, there is no question that the continued increase in the Connecticut 879.1 567.8 65% number and value of exposed properties Delaware 208.9 81.9 39% in coastal states and counties has Florida 3,640.1 2,862.3 79% contributed to increasing hurricane losses Georgia 1,932.2 106.7 6% for insurers and reinsurers. Louisiana 823.0 293.5 36% Maine 285.5 164.6 58% Historically, the insured value of Maryland 1,293.4 17.3 1% properties in coastal states has grown at a compound annual rate of about Massachusetts 1,561.4 849.6 54% 7%. That translates to a doubling every Mississippi 468.5 60.6 13% decade —of insured values and insured New Hampshire 278.7 64.0 23% losses. Although housing starts took a New Jersey 2,129.9 713.9 34% significant downturn during the post- New York 4,724.2 2,923.1 62% 2008 recession, indications are that North Carolina 1,795.1 163.5 9% growth is already picking up and may Rhode Island 207.5 58.3 28% soon be back to historical levels. South Carolina 843.6 239.3 28% The table shows AIR Worldwide’s Texas 4,580.7 1,175.3 26% estimates for the insured value of Virginia 1,761.7 182.3 10% residential and commercial properties ALL STATES ABOVE 28,331.4 10,642.2 38% in coastal states and, separately, in the TOTAL U.S. 64,624.3 10,642.2 16% coastal counties within those states, as of the start of 2013. * Total insured value of properties is an estimate of the cost to replace structures and their contents, including additional living expenses and business interruption coverage, for all residential and commercial property in the state that is insured or can be insured. We are pleased to announce that the Florida Commission on Hurricane Loss Projection Methodology (FCHLPM) has certified Touchstone for use in Florida rate filings! ® 3 Northeast U.S. Hurricane Risk Category at 8 12 Northeast Landfall 7 13 Category 1 6 9 3 Category 2 2 Category 3 Since 1900, 14 hurricanes have made landfall in the 4 Northeast, at Category 3 1 Unnamed (1903) 5 2 Unnamed (1924) 1 Great New England Hurricane of 1938 3 Unnamed (1934) Most powerful Northeast hurricane of the 20th century 4 Great New England (1938) Storms that reach the 5 Great Atlantic (1944) Great Atlantic Hurricane of 1944 Northeast are commonly Carol (1954) 10 First use of aircraft reconnaissance 6 14 characterized by rapid 7 Edna (1954) Hurricane Carol, 1954 forward movement, high 8 Donna (1960) Prompted formation of National Hurricane winds, and coastal flooding 9 Gerde (1969) Center 10 Agnes (1972) Hurricane Edna, 1954 11 Belle (1976) Followed Hurricane Carol by 10 days 12 Gloria (1985) 13 Bob (1991) Hurricane Donna, 1960 Boston records 145 mph wind gust 14 Sandy (2012) Hurricane Gloria, 1985 1.5 million New Yorkers lose power 11 Hurricane Bob, 1991 Second-costliest hurricane at the time $ $ In coastal Hurricane Sandy, 2012 counties of Largest hurricane ever recorded: 1,100 miles wide $ $$ the Northeast, $$$ USD 5.3 $$ trillion of insured Note that hurricanes that reach the Northeast are often in the process of extratropical transition; exposure is at risk some are no longer tropical at the time of landfall, 5 but can maintain hurricane-strength winds. WHAT CAN HAPPEN NEXT TIME? Boston Albany Syracuse Buffalo Providence Hartford $ 0 25 50 100 New York City Miles $ Loss Philadelphia USD Millions The large storm, with a The storm’s fast forward Storm surge causes Sustained winds of up to radius of maximum winds speed (56 mph) results in a flooding in coastal areas of 110 mph (borderline < $0.5 Atlantic City (Rmax) of 50 miles, affects highly asymmetrical wind New Jersey and southern Cat 2/Cat 3) cause $0.5 to $1 11 states.