Hurricane Delta hits 120mph Cat 3, dangerous impacts forecast on landfall

Hurricane Delta has intensified overnight as expected reaching 120 mph Category 3 sustained winds as it tracks towards the northern Gulf Coast, with southwestern Louisiana expected to see damaging hurricane force winds and a life threatening storm surge on landfall.

Hurricane Delta weakened after passing across Mexico’s Yucatan Peninsula where damage was seen to be quite extensive across some of the hotel belt area around Cancun.

But Delta has intensified again, as it was forecast to do and at the same time the hurricane is growing slightly, posing an increasingly significant threat to the landfall region where it comes ashore later today, Friday.

Hurricane Delta’s landfall is expected to be in southwestern Louisiana, a very similar location to where hurricane Laura came ashore in August.

Hurricane Delta is moving towards the northern Gulf Coast at a speed of roughly 12 mph, carrying maximum sustained winds of 120 mph and gusts to 150 mph.

Slight weakening is forecast as hurricane Delta approaches land, but it is expected to remain a dangerous storm and potentially life threatening impacts are assured in the landfall region.

Our market sources continue to point to catastrophe model analysis that estimate hurricane Delta as likely to drive insurance and perhaps reinsurance market losses in the single digit billions.

We’re told a range of roughly US $2 billion to US $8 billion is being widely discussed in the market, although we understand that some model runs that don’t weaken hurricane Delta put the top-end of the range just into double-digits.

As we explained yesterday, given the relatively small size of hurricane Delta, compared to some hurricanes, the exact landfall location and the location of the strongest winds, will be a key determinant in how extensive a loss the storm may drive to insurance and perhaps reinsurance carriers, as well as insurance-linked securities (ILS) funds.

But in general, aligned with yesterday, catastrophe risk models continue to project insurance and reinsurance market losses in the single digit billions of dollars at the moment.

The similarities with hurricane Laura, in terms of landfall location, remain.

As a reminder, hurricane Laura reached major status and intensified right up to landfall and is estimated to have driven an insurance and reinsurance market loss just reaching into the double-digit billions.

Hurricane Delta is unlikely to manage such a feat of intensification close to the shore, as the water temperatures are now much lower than they were when Laura was in the Gulf.

We can also compare this year’s hurricane Sally, which made landfall with sustained winds of around 105 mph, so a bit closer to where the top-end of forecasts suggest hurricane Delta’s winds will be on landfall.

Hurricane Sally’s insured losses have been estimated at up to $3.5 billion, although some of our market sources suggest the impacts in Florida are proving a little more significant than thought and this storm could go slightly higher, in terms of loss than initially anticipated.

The image below from Tropical Tidbits shows modelled forecast guidance on the intensity of hurricane Delta and now looks more aligned with forecasters suggestion that the combination of increasing wind shear and cooler waters in the northern Gulf will impact Delta’s ability to maintain major hurricane status and result in a slightly weaker landfall.

The NHC is in agreement and also says to expect hurricane Delta to weaken as it nears land in its latest forecast update.

This week, we also reported that Plenum Investments said hurricane Delta is unlikely to impact any catastrophe bonds directly, but could further erode aggregates for some.

It seems aggregate deductible erosion across reinsurance contracts, as well perhaps as some retrocession, plus quota shares and reinsurance programs of coastal carriers that have already been hit by previous hurricanes this year, may be where to initially look for losses that could flow to reinsurance capital from Delta, should it prove to be a loss in the billions.

The NHC forecasts a storm surge of up to 11 feet for the region, you can see the peak storm surge forecast below.

CoreLogic noted yesterday that as many as 300,000 homes could be exposed to storm surge from hurricane Delta, with reconstruction values totalling $62.85 billion at potential risk of storm surge damage based on Delta’s projected Category 2 status at landfall.

Rainfall forecasts suggest totals of 10 to 15 inches widely across the region from the storm.

Models suggest shear combined with cooler sea surface temperatures will weaken Delta as it approaches landfall, but still most of them suggest at least 90 mph sustained winds, perhaps as high as 105 mph. Once it makes landfall though, Delta is expected to weaken rapidly.

It’s important to also note, this was highlighted by Andrew Siffert of BMS yesterday, that because hurricane Delta is set to come ashore in a region recently affected by hurricane Laura, the catastrophe models likely don’t take into account damage from the previous storm and the fact that can make buildings more susceptible to damage from a second hurricane.

Siffert explained, “The claims process could be further complicated by Hurricane Delta, making landfall just six weeks after Hurricane Laura in the same general area. The insurance industry experienced several complications in 2004 when this occurred, and history is repeating itself. The other thing to consider is that although the track could be slightly different, damage to structures has already happened in the area. When using catastrophe models, they generally don’t factor this in, so any damage estimates from the model need to be taken with a greater degree of uncertainty. The catastrophe model does not explicitly account for the current degree of damage that might have already occurred to a roof that has already been a paid claim, possibly overstating the loss estimate from the catastrophe model. The model also does not generally account for the fact that the roof might already be weakened and could increase damage from wind and rain. This leaves something to think about as the insurance industry starts to release industry loss estimates, which will surely be larger than the normal range provided the uncertainty in how much Delta might weaken before landfall.”

Which could lead to some challenges in both establishing accurate industry loss estimates after hurricane Delta passes through, but also in claims adjusting and identifying which storm caused a loss.

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