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Member, Beacon International Group, Ltd.
LONDONThere will be 10 tropical storms in the North Atlantic between July and November 2007, according to a new forecasting tool launched by the U.K. Met Office at Lloyd's of London Tuesday.
The new Met Office forecast tool is different to existing forecasting methods in that it makes predictions based on scientific measurement, rather than statistical analysis, the organization said.
Paul Nunn, Lloyd's head of exposure management, said that typically forecasting models are really only of limited use to the insurance industry, because while they might predict the amount of activity in a particular hurricane basin, they do not predict landfall which is where insurance losses are most keenly felt.
Moreover, traditional seasonal forecasts do not happen sufficiently far in advance to allow insurers to react.
"Seasonal forecasts don't arrive soon enough for insurers to make commercial decisions, as business is typically written on a 12-month cycle," he said. "The December forecasts don't predict very accurately for the year ahead. By April/May, the predictions are better, but insurers have already written their portfolio of risk."
The April/May predictions do, however, allow insurers to indulge in the relatively new mechanisms which allow them to transfer risk away from the industry, such as exchange-traded derivatives, he said.
The prediction for hurricane behavior in the Atlantic basin from the Met Office is not only lower than average for the period 1990-2005, but is also lower than other predictions, such as those of the National Oceanic & Atmospheric Administration, of which the National Hurricane Centre is part.