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The 2012 Atlantic hurricane season begins this week, and coastal property owners and property catastrophe insurers and reinsurers are keeping fingers crossed that the season plays out as depicted in most forecasts.
Those forecasts generally predict a less active North Atlantic hurricane season this year. Insurers who experienced sizable catastrophe losses in 2011—and property catastrophe insurance buyers who've seen premiums increase since midyear last year as a result—all hope they're right.
In their forecast, Philip J. Klotzbach and William M. Gray of the Department of Atmospheric Science at Colorado State University in Fort Collins, Colo., predict that this year's Atlantic hurricane season will be less active than the median 1981-2010 season. They forecast approximately four hurricanes compared with a median of 6.5, and 10 named storms compared with a median of 12.
Of those hurricanes, the Colorado State researchers expect two to be major Category 3, 4 or 5 storms, a figure in line with the median. And they envision the probability of U.S. major hurricane landfall at about 80% of the long-term average.
The National Oceanic and Atmospheric Administration offered its own forecast last week, calling for a “near-normal” season with nine to 15 named storms, four to eight hurricanes, and one to three major hurricanes.
An unusually cool tropical Atlantic and the possibility of an El Niño event in the Pacific are key factors shaping this year's hurricane season forecasts.
Others taking some comfort from this year's forecasts might be officials of Florida's Citizens Property Insurance Corp. and the Florida Hurricane Catastrophe Fund. Both might benefit from improved bond yields if they issue debt in the months ahead.
Given the reduced likelihood of Florida experiencing a major hurricane hit this season, the spread between outstanding Citizens' debt and AAA bonds has narrowed recently, showing that investors feel comfortable requiring less of a yield penalty on the debt issued to finance possible Florida hurricane cleanup costs.
Forecasts aside, the 2012 season couldn't wait to rush from the gate, with Tropical Storm Alberto forming in the Atlantic May 19, well before the traditional June 1 start of the season. Can one read anything into that premature start? Risk modeler EQECAT Inc. referred to Alberto's formation and the May 14 formation of Tropical Storm Aletta in the Pacific only as “interesting.”
Despite the good feelings around this year's predictions, forecasts remain forecasts; and even if fewer storms than average make landfall, those that land still can create havoc.
As Messrs. Klotzbach and Gray sagely noted in their forecast, “Coastal residents are reminded that it only takes one hurricane making landfall to make it an active season for them, and they need to prepare the same for every season, regardless of how much activity is predicted.”