Posted in News on 12 Feb 2019

El Niño is an irregular cycle that occurs at two to seven year intervals. The effects of El Niño can have an impact on ocean currents and temperatures and current, as well as the livelihood of coastal fisheries and local weather across the globe.[1]

Typically, this can last anywhere between nine months to two years, with an average time period of five years. [2] El Niño events are defined by their wide-ranging teleconnections - large-scale, long-lasting climate anomalies or patterns that are related to each other and can affect much of the globe. [3]

For example, when El Niño causes rain in South America, it can simultaneously cause droughts in regions on the other side of the globe. These droughts can threaten the region’s water supplies, as reservoirs dry up and rivers carry less water. For sectors such as agriculture, which depends on water for irrigation, or manufacturing, which can require large quantities of water, the impact is significant.

The last El Niño event, which began in 2014 and ended in 2016, resulted in the final year of that episode being the hottest ever recorded by adding to the heating caused by carbon emissions. However, there is no consensus on whether climate change will have any influence on the occurrence, strength or duration of El Niño events.[4] It was only in March 2017 that the effects of El Niño became evident when heavy rainfall affected a large part of Northern Peru, causing flooding and landslides. Andres Rincon, Alesco’s Latin America Property Coordinator for Peru, reported that this event resulted in reinsurance losses of tens of millions of dollars to the Lloyd’s market.

According to the UN’s World Meteorological Organization, there is a 75-80% chance of a climate-warming El Niño event by February 2019. [5]  However, current research indicates that the possible upcoming El Niño conditions may not lead up to an episode as strong as that of 2014 – 2016.

Andres Rincon, Alesco’s Latin America Property Coordinator for Peru, commented – “What becomes important is articulating this to insurers; a good broker should have a thorough understanding as to their approach to market when placing reinsurance coverage for local carriers. It is the responsibility of the broker to regularly monitor the meteorological status of any given episode as and when it develops. The most important focus being on two main factors - its strength and end date. Our experience in the placement and claims servicing of accounts that are the most exposed to the El Niño phenomenon, in particular Water Distribution Networks, means we are able to deliver astute insurance broking guidance and support to businesses in Latin America.”

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