NU Online News Service, May 20, 2:35 p.m. EDT
Insurers are beginning to embrace the results of the new catastrophe model from Risk Management Services (RMS) after getting over the initial shock of higher collateral reserves insurers may have to accept, a company official said.
Ryan Ogaard, senior vice president for RMS, said the industry is beginning to accept the new catastrophe model despite the fact that it has meant a substantial increase in probable maximum loss estimates.
"There was a lot of heat from the initial reaction to the new model (RMS version 11)," says Ogaard in an interview with PC360. "We did surprise the market with the size of the change."
His comments came in light of an analyst's note this week reviewing the Bermuda property and casualty catastrophe market.
Joshua Shanker, an analyst for Deutsche Bank, says there is a high backlash to the new RMS model among reinsurers because of the increased capital costs, and they are rejecting "one or multiple conclusions that the model makes."
He went on to say that some would instead embrace AIR's competing model, which "could cause RMS to rethink some of its assumptions."
Ogaard disputed Shanker's assessment, saying that instead of rejecting the model, carriers are accepting it, after very close scrutiny. A month ago, he says, there was some significant pushback from carriers, but they are beginning to understand the nuances of the model.
While insurers have accepted the wind-loss portion of the model, they are still grappling with some other aspects.
One thing new with this model is calculations for storm surge, Ogaard says. That aspect of the model increases loss estimates, but it also produces "a more robust model," he adds.
"We are not seeing an exodus or rejection of the model," he says. "We are seeing intense scrutiny in a more open process in the industry where we have put more emphasis on transparency than ever in the past."
In his note, Shanker says that after a conversation with eight Bermuda-based insurers and reinsurers, there is the belief that June 1 current pricing is being quoted up 10-12 percent, "and rates have moved more quickly than we formerly estimated."
Quotes issued earlier in the process were lower, which means overall average renewals could lead to single-digit aggregate increases.
He says reinsurance buyers and sellers "are having difficulty coming to an agreement on price," as each waits out the other for better terms. However, the increases appear limited to property catastrophe.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.