Arthur could strike around the Fourth in Morehead City
Ahead of the Independence Day holiday weekend, the U.S. East Coast is preparing for Tropical Storm Arthur, the first named storm of the 2014 season.
Formed yesterday off the east coast of Florida, Arthur has strengthened to a strong tropical storm, with sustained winds of more than 60 miles per hour, and is expected to strengthen to a Category 1 hurricane at some point Thursday. Storm watchers say it is showing signs of forming a defined eye wall and could strike the Outer Banks of North Carolina – an area typically thronged with tourists this time of year – the morning of July 4.
While it is unusual to see a storm reach this degree of intensity so early in the season, risk modeler AIR Worldwide does not expect significant wind-related claims, anticipating storm surge to be a more significant factor:
According to AIR, if the storm makes landfall in or bypasses North Carolina as a Category 1 hurricane, wind damage to most homes and businesses is not expected to be significant. There may be isolated instances of nonstructural damage to roof coverings and wall cladding, and windows if debris becomes airborne, as well as damage to trees, utility poles, and signage
Should the storm hit North Carolina particularly hard, it will be interesting to see how the two state-backed insurance pools – the North Carolina Joint Underwriting Association (or “FAIR Plan”) and the North Carolina Insurance Underwriting Association (or “Beach Plan”) – cope with the losses.
Under their current financial structure, the pools have about $4.09 billion of claims-paying ability, which comprises $700 million of retained earnings; $1 billion of assessments on member companies; $945 million of traditional reinsurance and an additional $544.6 million of reinstatement layers; $701.8 million of catastrophe bond coverage; and $270 million of post-event bonding coverage.
The first layer of cat bonds (the Tar Heel Re bonds) if losses exceed $2.025 billion. To date, no cat bonds issued by a public insurance authority in the United States have ever been triggered.
According to the most recent wind-speed probabilities advisory from the National Hurricane Center, most directly in Arthur’s path are North Carolina’s Cape Hatteras and Morehead City, which face odds of a tropical storm strike of 82 percent and 75 percent, respectively, and odds of a hurricane strike of 21 percent and 15 percent, respectively.
Other cities facing tropical storm risk include Wilmington, N.C. (55 percent); Nova Scotia’s Halifax (51 percent), Yarmouth (50 percent) and Eddy Point (43 percent); Nantucket, Mass. (44 percent); and Myrtle Beach, S.C. (40 percent).
There’s little risk of a hurricane strike outside of North Carolina’s Outer Banks, with the highest risks seen in Yarmouth, N.S. (7 percent); Nantucket (6 percent); and Wilmington, N.C. (5 percent).