RMS announces the release of its North American hurricane modelsuite, version 13.0, which has the ability to quantify therisk from catastrophic hurricane-driven storm surge, and includesnew insights into future hurricane activity levels.

"Hurricane Sandy revealed just how real storm surge risk is,"says Dr. Claire Souch, vice president, model solutions at RMS. "Ourmodel shows there is a 20 percent chance that storm surgeloss will be greater than wind loss for any U.S hurricane thatmakes landfall, which rises to almost 40 percent along thenortheast coast of the United States. This is a risk the market canno longer afford to ignore."

Version 13.0 builds on RMS' storm surge methodology, which wasinitially launched in 2011. The model simulates the interactionbetween wind and surge throughout the entire lifecycle of eachhurricane using a state-of-the-art hydrodynamic model.

The model release includes new data that enables insurers todistinguish between the potential losses from residential andcommercial lines of business. Both lines have different levels ofmarket exposure—commercial and industrial lines typically drive thebulk of the total insurance loss from storm surge—and cannot betreated with the same assumptions.

"Most insurance policies for commercial and industrial linesprovide some level of coverage for flood loss, so having anaccurate view of storm surge risk is critical to capital managementand risk transfer decision-making, through to the structure andplacement of cat bonds," says Souch.

In contrast, the insured loss potential for homeowners and smallbusiness owners is lower than the larger commercial and industriallines—although some market risk does exist from excess- NFIP floodinsurance policies.

"Since the 2004-2005 hurricane seasons, insurers' claimshandling processes have strengthened, policy language is clearer,and more U.S. homeowners have purchased flood insurance through thefederal government," says Souch. "All of this mitigates thepotential for so called coverage leakage of surge loss intoresidential wind-only policies."

RMS has also issued a new medium-term rate forecast, whichincorporates scientific findings into the impact that sea surfacetemperatures have on U.S. landfall. The research, conducted by RMSscientists, shows increased hurricane activity in the AtlanticBasin is not always converted to a proportional increase inhurricanes making U.S. landfall. The new findings are currentlyunder peer review.

"Our medium-term rates forecast provides a five-yearprobabilistic forecast that is unique both within the insuranceindustry and the academic community. Our forecast gives insurancecompanies an additional view of the risk that may be moreappropriate to future climate conditions, as opposed to usingaverages of historical activity," said Souch.

Version 13.0 also incorporates the most current data from theFederal Emergency Management Agency's (FEMA) 2012 flood insurancerating maps, as well as updated information on in-force NationalFlood Insurance Program policies. Accurate building elevations datais a key determinant to the accuracy of storm surge lossestimates.

The North Atlantic hurricane model suite is being released inRMS' RiskLink 13.0 and RiskBrowser 13.0 risk modeling platforms,and will also be available on RMS(one) at launch in 2014.