RMS Out With New Earthquake Loss Estimator

NU Online News Service, Jan.21, 00:00 a.m. EST

Risk Management Solutions said it has developed a new product for estimating insured losses from U.S. earthquakes.

The Newark, Calif.-based firm said its parametric index, Paradex U.S Earthquake, combines ground shaking data from U.S. Geological Survey ShakeMaps with industry exposure data to calculate insured loss estimates, which can be used to structure and monitor catastrophe bonds, industry loss warranties, and derivative contracts.

Paradex, said RMS, provides insured loss estimates by postal code and line of business for all U.S. states and includes damage from ground shaking, fire following earthquake, and sprinkler leakage.

The modeling firm said granular insured loss estimates produced by Paradex will help issuers to minimize the risk that a security would not sufficiently cover actual losses from an event by tailoring the index to match their exposures and lines of business.

RMS said its new index also enables catastrophe risk to be transferred to the capital markets quickly and transparently, with contracts settling in 40 business days or less following an event-- compared to up to a year for indices that involve polling the industry.

"Paradex offers insurers and reinsurers a straightforward way to transfer earthquake risk based on location-specific ground motion. To date, this approach has only been available through complex parametric cat bonds; now Paradex makes it accessible to simpler structures such as Industry Loss Warranties," Peter Nakada, managing director of the RMS dedicated ILS team, RiskMarkets explained in a statement.