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Thursday, July 1, 2010

Hurricane Alex hits Mexico - the impact on Insurers

A major worry for Property Insurers is ‘Act of God’ perils which include storm, tempest, flood and inundation. Those in Western hemisphere have not suffered hurricane losses for a few years now but one hurricane and spate of claims could threaten their profits. Criticizing Insurers for high premiums even in market economies is populistic. Insurers over the world are already dissipated by variety of other factors including recession, and falling rates. In places like Florida , there is a catastrophe fund, which collects 1 % assessment on all insurance policies. Wilma, Andrew and Charlie (all hurricanes of the past) devastated the Insurers with huge claims.

Closer to the onset of Atlantic hurricane season, Insurers go scrambling for reinsurance covers, which increases their capacity to bear losses.  Regardless of the solvency requirements, Nature is too difficult to predict and a big storm or a series of smaller hurricanes can wipe out some Insurance Companies out of their existence, if they their planning was not good enough. Insurers deal with risks after all.

The scientific name for a hurricane, regardless of its location, is tropical cyclone. In general, a cyclone is a large system of spinning air that rotates around a point of low pressure. Only tropical cyclones, which have warm air at their center, become the powerful storms that are called hurricanes. A tropical cyclone is a storm system characterized by a large low-pressure center and numerous thunderstorms that produce strong winds and heavy rain. The term hurricane is derived from Huracan, a god of evil recognized by the Tainos, an ancient aboriginal tribe from Central America. In other parts of the world, hurricanes are known by different names. In the western Pacific and China Sea area, hurricanes are known as typhoons, from the Cantonese tai-fung, meaning great wind. In Bangladesh, Pakistan, India, and Australia, they are known as cyclones, and finally, in the Philippines, they are known as baguios.
the storm path (courtesy :

Once sustained wind speeds reach 37 kilometers (23 miles) per hour, the tropical disturbance is called a tropical depression. As winds increase to 63 kilometers (39 miles) per hour, the cyclone is called a tropical storm and receives a name, a tradition started with the use of World War II vintage code names such as Able, Baker, Charlie, etc. For a number of years beginning in 1953, female names were used exclusively until the late 1970s, when storm names began to be alternated between male and female names. Finally, when wind speeds reach 119 kilometers (74 miles) per hour, the storm is classified as a hurricane. In 1953, the National Weather Service picked up on the habit of Naval meteorologists of naming the storms after women. Ships were always referred to as female, and were often given women's names. The storms' temperament certainly seemed female enough, shifting directions at a whim on a moment's notice. In 1979, male names were inserted to alternate with the female names,to the delight of women's-libbers everywhere.
Few things in nature can compare to the destructive force of a hurricane. Called the greatest storm on Earth, a hurricane is capable of annihilating coastal areas with sustained winds of 155 miles per hour or higher, intense areas of rainfall, and a storm surge. In fact, during its life cycle a hurricane can expend as much energy as 10,000 nuclear bombs!

Hurricanes start over the ocean. They need Warm water, damp air and winds that meet and have three main parts :
1. Eye -- This is the center. It is the calm part of the storm.
2. Eye Wall -- This part is around the eye. This part has the strongest winds and rains. The winds may blow 200 miles per hour.
3. Rain Bands -- These are the clouds that spin out and make the storm bigger.

This is the period when the Atlantic hurricane season officially begins; the  National Oceanic and Atmospheric Administration is predicting an active season this year, with as many as 23 named tropical storms. An estimated eight to 14 storms could strengthen into hurricanes. Of those storms, three to seven could become major hurricanes. There were 3 hurricanes during the previous 2009 Atlantic season but none came ashore in the United States. The first one is named “Alex”.  When the storm was located approximately 175 miles (280 kilometres) east of La Pesca in Mexico it had sustained winds of around 80 mph (130 kmph). At Texas, Governor Rick Perry issued his own state disaster proclamation for 19 counties, allowing Texas to launch preparations such as pre-deploying resources to ensure local communities are ready to respond to the hurricane.

Fortunately enough, Alex missed much of the major oil drilling sites in the Gulf of Mexico. Here are a couple of photos taken from which tracks active tropical depressions.

Alex at 100 mph

alex near Texas
Alex, the category 2 hurricane was apprehended to hamper the efforts to control the massive BP oil spill very badly. Rain from the storm swamped beaches and residents had to be provided temporary shelters.

The storm travelled far south-west of the area worst hit by the massive spill - the coasts of Louisiana, Mississippi, Alabama and Florida and passed through Nicaragua, Guatemala and El Salvador over the weekend.

A few hours earlier today (Thurs 1st July 2010) Hurricane Alex drenched the Texas-Mexico border as the powerful storm slammed into Mexico's Gulf coast, spawning tornadoes and flooding towns, but sparing US oil wells.  The Category 2 hurricane unleashed winds of 105mph that uprooted trees and knocked over flimsy houses and has come as a blow to efforts to control the BP oil spill off the Louisiana coast, where some operations were suspended. After making landfall in north east Mexico, Alex was downgraded to cat 1 storm.  The hurricane weakened as it moved inland and the National Hurricane Centre said the main threat from the storm is now heavy rainfall.

Hope this made an interesting reading. Look forward to your feedback

With regards - Sampathkumar

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