Hurricane Irma a potential U.S. threat next weekend

Major category 3 hurricane Irma is currently heading west across the Atlantic, with winds of 115 mph and a forecast that shows further intensification and a potential threat to the Bahamas and the United States coastline by next weekend, but with some uncertainty in the exact path still.

Hurricane Irma has intensified into a category 3 storm, with sustained winds of 120 mph, higher gusts and a minimum central pressure of 944mb as at 15:00 UTC on September 4th. Irma is forecast to strengthen and grow in size as it passes to the north of the Leeward Islands, en route to the Bahamas around Friday and then onwards towards the U.S.

On the heels of Harvey, hurricane Irma will alert insurance, reinsurance, catastrophe bond and ILS market interests to the potential for a second landfalling hurricane event in quick succession, which could stimulate some interesting activity over the coming days.

Hurricane Irma forecast cone, path and track from the NHC

The forecast models show considerable uncertainty as to hurricane Irma’s eventual track once it nears the Bahamas, with the potential for the storm to get picked up and propelled further northwards or even curve and miss the U.S. entirely. However the uncertainty in the model runs is becoming lower with each run, with a narrowing cone and a gradual shift west taking the track closer to Florida and many show a major hurricane landfall either at the weekend or early the following week.

The GFS model runs seen below, via the Tropical Tidbits website, all show a landfall, ranging from southern Florida to the north east U.S. coast.

Hurricane Irma GFS forecast models via TropicalTidbits.com

The forecast is for hurricane Irma to intensify, with its central pressure falling and wind speeds rising, as well as for the storm to grow in size as it progresses towards the Bahamas.

Hurricane Irma intensity forecasts via TropicalTidbits.com

Next weekend and the early part of the following week the global reinsurance industry will be meeting in Monte Carlo for the annual Rendez-vous de Septembre event, where the industry traditionally begins its discussions as the key January renewal season approaches. Hurricane Irma coming so soon after Harvey could make this years event particularly interesting.

Hurricane Irma could trigger live-cat trading activity as it approaches the U.S., if the forecasts continue to show a landfall as increasingly likely. Given the industry has yet to fully comprehend the impact and loss from hurricane Harvey there will be many companies nervous about a second major hurricane landfall, which could push more protection buyers to come forward.

As well as live cat trading activity, hurricane Irma could also stimulate protection buyers to look for back-up covers or second-event protection, given this hurricane is coming so soon after the last multi-billion dollar industry loss event.

Some re/insurers may feel they lack protection in the wake of Harvey, with some of their programs perhaps expected to be eroded, potentially providing opportunities for those markets looking to underwrite peak cat risks on a live basis. This could be attractive for any ILS funds with cash sitting waiting for an investment opportunity.

A landfall from Irma as a major hurricane would without doubt further erode aggregate deductibles, on traditional reinsurance contracts, catastrophe bonds, collateralized reinsurance and private ILS arrangements. A severe landfall in a highly populated coastal region could cause major losses across the sector.

A second hurricane loss event could also push more of the bill into reinsurers sidecars and retrocessional arrangements as well.

For the catastrophe bond market, there is significant U.S. east coast exposure of course, from Florida all the way up the coast, meaning that as hurricane Irma approaches the secondary market could come to life, with investors and ILS funds looking to trade out of positions deemed most risky. But this is unlikely to be a major feature of the market until the middle of the week.

At this time the insurance, reinsurance and ILS investment community will be alert and on watch for hurricane Irma, as it’s far too early to know whether a major impact is a likely outcome, but the chances of a hit will get clearer with each passing day.

We’ll continue to update you as hurricane Irma nears the U.S. and the forecasts become more certain.

You can track the hurricane season over at our dedicated page and all the graphics in this article will update automatically, so stay tuned.