El Niño-Southern Oscillation (ENSO)
The tropical Pacific's swing between a warm phase, El Niño, and a cold phase, La Niña, measured by the sea surface temperature anomaly of the Niño 3.4 region, which shifts droughts and rains across several continents in the same year.
ENSO is the leading mode of year-to-year climate variability: a coupling between the tropical Pacific Ocean and the atmosphere that flips every two to seven years between a warm and a cold phase. NOAA measures it with the ONI, the three-month running mean of the sea surface temperature anomaly in the Niño 3.4 region. An El Niño is declared when the ONI stays at +0.5°C or higher for at least five consecutive overlapping seasons, a La Niña at -0.5°C or lower. Above 1.5°C, the episode is called strong. Winter 2015-2016 peaked around 2.6°C, among the highest values since 1950. For agriculture, El Niño generally dries out eastern Australia, Indonesia and southern Africa and weakens the Indian monsoon. It floods northern coastal Peru. La Niña tends to dry Argentina, the southern US Great Plains and the Horn of Africa. These are tendencies, and each episode has its own geography. An underwriter sees it first as a source of correlation. A global agricultural reinsurer thinks it is diversified by holding Australia, South Africa and India; a strong El Niño can hit all three in the same season. ENSO forecasts, published months ahead, also create an adverse selection problem when cover can still be bought after the forecasts are out. Some index programs trigger on the anomaly itself. Not to be confused with background warming, which shifts the baseline against which the oscillation is measured.
Textbook case: a reinsurer holds three crop stop-loss treaties, in Australia, South Africa and India, each with a 10% annual attachment probability assumed independent. The model gives a 0.1% chance that all three trigger together. In strong El Niño years only, each probability rises to 30% and the aggregate becomes plausible: a 45 million euro loss across three 15 million euro treaties.
ENSO, El Nino, La Nina, Oceanic Nino Index, ONI
Follow the research
One letter a week. First, the week's underwriting note, when one is published: a dated, argued decision, signed by Paul Bernardski. Then what the observatory published on cyber risk, political risk and insurance. No account, no tracking.
No spam, one-click unsubscribe, no data ever sold.