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El Niño shows weak ability to predict insured property losses
Catastrophe modeler Karen Clark & Company says ENSO’s phase explains little of year to year losses, with landfall location typically the main driver.
According to a paper from catastrophe risk modeler Karen Clark & Company, insured property losses can show long term correlation with El Niño Southern Oscillation phases, but the climate pattern provides limited power to predict any single year’s losses. KCC says sea surface temperatures in the tropical Eastern Pacific have turned anomalously warm in recent months, indicating the El Niño phase.
KCC points to NOAA’s declaration of El Niño in June and its forecast that it will strengthen into the 2026 to 2027 winter season, with a projected peak in November to January. NOAA also estimates a greater than 60.0 percent probability of a very strong El Niño based on a compilation of forecasts, and KCC links those broad atmospheric changes to altered tropical cyclone conditions across the Pacific and Atlantic basins.
In KCC’s analysis, warm eastern Pacific waters enhance convection and thunderstorm activity, which can shift upper level winds that connect the Pacific and Atlantic basins. The firm notes that hurricanes generally form more during La Niña, while El Niño often suppresses hurricane formation, although highly active seasons can still occur.
KCC says the ENSO relationship with insured losses is especially distinct because landfall location typically matters more than the ENSO phase. Using its historical view of loss years since 1990, it says the largest loss years based on current exposure have occurred during neutral phases, including 2020, a La Niña year with record breaking named storms and six hurricane landfalls, yet insured losses that were about average.