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New RMS View of U.S. Hurricane Activity Rates
Increases Losses by 40% in Florida and Gulf Coast
Elevated Storm Frequency and Intensity Expected
to Persist for at least Five Years
Newark, Calif. – March 23, 2006 – Risk
Management Solutions (RMS) today announced that increases to hurricane
landfall frequencies in the company’s U.S. hurricane model will increase
modeled annualized insurance losses by 40% on average across the Gulf
Coast, Florida, and the Southeast, and by 25-30% in the Mid-Atlantic and
Northeast coastal regions relative to those derived using long-term
1900-2005 historical average hurricane frequencies.
This new view of risk is driven by an increase of more than 30% in the
modeled frequency of major (Saffir-Simpson Category 3-5) hurricanes
making landfall in the U.S. to account for current elevated levels of
hurricane activity in the Atlantic basin that are expected to persist
for at least the next five years. When compared with a pre-2004
historical baseline, as has been previously employed for quantifying
insurance risk, the increases in modeled annualized losses are closer to
50% in the Gulf, Florida, and the Southeast.
The increased frequency and intensity of hurricane activity in the
Atlantic Ocean Basin, as observed since 1995, are driven by higher sea
surface temperatures in the tropical North Atlantic and by associated
changes in atmospheric circulation. These warmer temperatures are
expected to translate into a continuation of high activity in the basin,
leading to a greater potential for hurricanes to make landfall at higher
intensities over the next five years.
To address this period of elevated frequency and intensity of storms,
RMS consulted with representatives from all segments of the insurance
industry and updated its U.S. and Caribbean hurricane models to provide
a ‘medium-term’ (five-year) forward-looking view of risk for estimating
potential catastrophe losses. To date, catastrophe model results have
been based on a long-term historical average baseline.
Expert Panel Convened
The RMS medium–term view of hurricane activity was
developed in cooperation with a panel of leading experts in hurricane
climatology convened by RMS in October 2005, including Dr. Jim Elsner,
Professor in the Department of Geography, Florida State University; Dr.
Kerry Emanuel, Professor in the Department of Earth, Atmospheric and
Planetary Sciences, Massachusetts Institute of Technology; Tom Knutson,
Research Meteorologist, Geophysical Fluids Dynamic Laboratory, Princeton
University ; and Dr. Mark Saunders, Professor of Climate Prediction,
Department of Space and Climate Physics, University College London.
Based on the five-year perspective of this expert panel, RMS developed a
methodology to update activity rates in its proprietary models based on
storm intensity, storm track, and landfall region. This methodology
indicates that increases in hurricane frequencies should be expected
across the entire U.S. coast, but will be highest in the Gulf, Florida,
and the Southeast, while lower in the Mid-Atlantic and Northeast. “Considerable scientific debate on the reasons for the high state of
current hurricane activity continues among leading climatologists,
between those who view natural, multi-decadal variability as the
principal cause and those who also see a significant influence of global
warming,” said Dr. Robert Muir-Wood, chief research officer at RMS.
“While the experts convened by RMS hold different climatological
perspectives on the underlying causes of elevated hurricane activity,
they agreed unanimously that a forward-looking view of risk should
reflect a higher probability of landfalling hurricanes than is
represented by long-term historical averages.”
This new outlook regarding heightened hurricane intensity and landfall
frequency will be incorporated in the updated RMS® U.S. and Caribbean
Hurricane Models, part of the May 2006 release of the RiskLink® and
RiskBrowser® 6.0 catastrophe modeling platforms. The models will also
contain changes in the modeling of vulnerabilities and post-event loss
amplification effects based on detailed RMS analysis of claims data from
the 2004 and 2005 hurricane seasons. RMS will continue to monitor,
publish, and apply the five-year forward-looking view of activity rates,
in conjunction with convening an annual expert elicitation of leading
hurricane climatologists. “Coming off back-to-back, extraordinarily active hurricane seasons, the
market is looking for leadership. At RMS, we are taking a clear,
unambiguous position that our clients should manage their risks in a
manner consistent with elevated levels of hurricane activity and
severity,” stated Hemant Shah, president and CEO of RMS. “We live in a
dynamic world, and there is now a critical mass of data and science that
point to this being the prudent course of action.”
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