RMS Launches New Hurricane Model Incorporating Lessons Learned From Active 2004-2005 Seasons

Enhanced Model Reflects Medium-Term View of Hurricane Activity and Latest Understanding of Building Vulnerability

Newark, Calif. – May 22, 2006– Risk Management Solutions, Inc (RMS), the world’s leading provider of products and services for the management of catastrophe risk, today launched the latest version of the RMS® U.S. Hurricane Model, the first catastrophe risk model to explicitly incorporate a five-year forward-looking view of hurricane frequency. The new model also reflects extensive claims research and analysis of building performance, as well as an expanded methodology to assess amplified losses that can occur in severe catastrophes such as Hurricane Katrina.

RMS launched its new model with version 6.0 of its RiskLink^® and RiskBrowser^® risk management platforms. Version 6.0 includes updates to the U.S. and Caribbean Hurricane models, Eastern U.S. and Eastern Canada Earthquake models, and a Europe Windstorm model. The new models were introduced on May 9-12 at the 2006 RMS Client Conference in Colorado Springs, Colorado. The largest gathering of catastrophe risk modeling professionals in the industry, the conference was attended by more than 500 insurance and reinsurance industry representatives.

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. RMS believes that hurricane risk over the next five years is best represented by landfalling hurricane activity rates that are higher than the long-term historical average. Higher hurricane activity in the Atlantic is strongly linked to increased sea surface temperatures, and is likely to persist for at least the next five years, as determined by extensive RMS research on climate variability, climate change, historical hurricane activity patterns, and hurricane clustering research. RMS assembled a panel of leading hurricane climatologists in October 2005 to confirm this new view of risk, and plans to repeat the process annually in order to review and assess the latest conditions and state of hurricane activity research.

After the 2004 and 2005 hurricane seasons, RMS embarked on a major research initiative involving the collection and analysis of claims and exposure data. This effort resulted in the creation of the world’s largest compilation of high-resolution hurricane claims, from which RMS extracted a considerable amount of important and previously unavailable knowledge relevant to risk modeling.

The RMS U.S. Hurricane model combines advanced modeling techniques with in-house research on storm behavior and building, contents, and time element vulnerability to accurately simulate the potential range of damage an insurer can expect to experience due to a hurricane event. Wind and storm surge losses are calculated using enhanced vulnerability assessment facilitated in large part by the collection of $13 billion in insurance claims data from the 2004 and 2005 hurricane seasons, as well as new analytical assessments of building performance.

“These simultaneous analysis efforts have significantly improved the accuracy of risk assessments by allowing for greater differentiation and more precise estimation of various classifications of hurricane risk,” stated Phil LeGrone, director of claims research at RMS. 

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, explains 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.”

The new U.S. Hurricane model incorporates this cutting edge research, assessing factors such as economic demand surge, claims adjustment and inflation, the economic impact of reconstruction, and cascading catastrophes that can occur in major metropolitan areas.

Version 6.0 is the most significant release from RMS to date, with major initiatives that include:

• New versions of the RMS Eastern U.S. and Eastern Canada earthquake models, and the Europe Windstorm model to reflect 3^rd generation modeling techniques
• Enhancements to the RMS Offshore Platform model, for assessment of risk to offshore oil and gas platforms in the Gulf of Mexico, as well as updated storm surge modeling for the U.S. and a new storm surge model for the Caribbean
• New capabilities for underwriting and managing risk due to California Wildfires
• Upgrades to the RiskLink® and RiskBrowser® software platforms that enable the models to incorporate new features requested by users