September 22nd, 2011

Impact of Catastrophe Model Updates

Posted at 1:00 AM ET

Adding to the pressure on the market was the impact of a new U.S. hurricane model release by Risk Management Solutions (RMS). The launch of RMS version (v)11 in February created uncertainty. The upgrade resulted in inland risk estimates rising substantially due to slower dissipation rates for hurricanes and heavier damage for lower wind speed events. There has also been some debate on the storm surge component of the model. Combined with the high global losses and their impact on reinsurers’ balance sheets, this had an effect on U.S. catastrophe pricing through the renewal season.

Although the market has yet to determine fully how it will integrate RMS v11, it is expected that some companies will see aggregate exposures rise due to increased risk perception. Some carriers will also need to hold more capital to cover the same level of catastrophe exposure, possibly prompting a rise in demand for reinsurance protection.

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