December 2nd, 2014

Emerging Risk: RMS Global Probabilistic Terrorism Model

Posted at 1:00 AM ET

Risk Management Solutions (RMS) released an updated Probabilistic Terrorism Model (PTM) in July 2012, version 3.1.2. The new model revised the annual frequency of a terrorist attack on US soil. No updates were made to geographies outside the United States.

RMS used a panel of terrorism experts and closely tracked data from the past ten years on terrorist arrests and indications of planned and thwarted attacks. The result of this research was a reduction in the annual number of planned macro attacks in the United States from four to three, implying a 19 percent reduction in average frequency and a 19 percent reduction in the average annual loss (AAL). The reduction in frequency was the only change made to the model. The impact on the AAL was therefore the same across all books of business, but could vary by return period.

In August 2012, RMS reported that the overall macro attack frequency rate was reduced from 0.61 to 0.49 for the standard risk outlook for 2013, resulting in a change in the average number of macro attack plots annually. The interdiction rate and the suppression factor remained unchanged.

The reduced risk outlook was also updated, resulting in the average number of plots decreasing from three to two and the average frequency decreasing from 0.49 to 0.36. The increased risk outlook also decreased from an average of five attempted plots to 3.5, giving an average frequency of 0.55.

RMS updated its US workers compensation cost severities in October 2014 to reflect the latest legislation and cost estimates for injury payments.

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