New RMS Model Could Spike Re Pricing

Risk Management Solutions Inc. today launched the latest version of the RMS U.S. Hurricane Model that could send primary and secondary insurance prices up.

Earlier this year, the Newark, Calif.-based company said its release would result in modeled annualized insured loss increases of 40 percent across the Gulf Coast and Florida. In addition, modeled loss increases of up to 30 percent could affect the Midwest and Northeast coastal regions.

Fitch Ratings analyst James Auden said the new model could force those carriers with exposures “on the cusp” not to renew some business to keep in line with its projections.

Morgan Stanley property-casualty analyst William Wilt said that despite the fact many of the model's findings have already been “telegraphed,” many primary insurers will still be shocked at the 40-to-75 percent increase in secondary coverage costs that could now result.

The updated RMS U.S. Hurricane model provides a new view of hurricane frequency in the Atlantic Basin that explicitly represents risk based on a 'medium-term' (five-year) forward-looking view.

The hurricanes of 2004 and 2005 have also provided new insights into the amplification of insured losses in severe catastrophes due to economic causes beyond wind and water damage, said Dr. Robert Muir-Wood, chief research officer at RMS.

“Hurricane Katrina has prompted further research and understanding on how one high-impact event can create a cascade of far more damaging consequences. A whole new tier of economic, behavioral and systems-based modeling is required to predict the losses in such super catastrophes.”