Tag Archives: catastrophe modeling

Has That Oilfield Caused My Earthquake?

“Some six months have passed since the magnitude (Mw) 6.7 earthquake struck Los Angeles County, with an epicenter close to the coast in Long Beach. Total economic loss estimates are more than $30 billion.  Among the affected homeowners, the earthquake insurance take-up rates were pitifully low – around 14 percent. And even then, the punitive deductibles contained in their policies means that homeowners may only recover 20 percent of their repair bills.  So, there is a lot of uninsured loss looking for compensation. Now there are billboards with pictures of smiling lawyers inviting disgruntled homeowners to become part of class action lawsuits, directed at several oilfield operators located close to the fault. For there is enough of an argument to suggest that this earthquake was triggered by human activities.”   

This is not a wild hypothesis with little chance of establishing liability, or the lawyers would not be investing in the opportunity. There are currently three thousand active oil wells in Los Angeles County. There is even an oil derrick in the grounds of Beverly Hills High School. Los Angeles County is second only to its northerly neighbor Kern County in terms of current levels of oil production in California.  In 2013, the U.S. Geological Survey (USGS) estimated there were 900 million barrels of oil still to be extracted from the coastal Wilmington Field which extends for around six miles (10 km) around Long Beach, from Carson to the Belmont Shore.

Beverly Hills High School Picture Credit: Sarah Craig for Faces of Fracking / FLICKR

Beverly Hills High School   Picture Credit: Sarah Craig for Faces of Fracking / FLICKR

However, the Los Angeles oil boom was back in the 1920s when most of the large fields were first discovered. Two seismologists at the USGS have now searched back through the records of earthquakes and oil field production – and arrived at a startling conclusion. Many of the earthquakes during this period appear to have been triggered by neighboring oil field production.

The Mw4.9 earthquake of June 22, 1920 had a shallow source that caused significant damage in a small area just a mile to the west of Inglewood. Local exploration wells releasing oil and gas pressures had been drilled at this location in the months before the earthquake.

A Mw4.3 earthquake in July 1929 at Whittier, some four miles (6 km) southwest of downtown Los Angeles, had a source close to the Santa Fe Springs oil field; one of the top producers through the 1920s, a field which had been drilled deeper and had a production boom in the months leading up to the earthquake.

A Mw5 earthquake occurred close to Santa Monica on August 31, 1930, in the vicinity of the Playa del Rey oilfield at Venice, California, a field first identified in December 1929 with production ramping up to four million barrels over the second half of 1930.

The epicenter of the Mw6.4 1933 Long Beach earthquake, on the Newport-Inglewood Fault was in the footprint of the Huntingdon Beach oilfield at the southern end of this 47 mile-long (75 km) fault.

As for a mechanism – the Groningen gas field in the Netherlands, shows how earthquakes can be triggered simply by the extraction of oil and gas, as reductions in load and compaction cause faults to break.

More Deep Waste Water Disposal Wells in California than Oklahoma

Today many of the Los Angeles oilfields are being managed through secondary recovery – pumping water into the reservoir to flush out the oil. In which case, we have an additional potential mechanism to generate earthquakes – raising deep fluid pressures – as currently experienced in Oklahoma. And Oklahoma is not even the number one U.S. state for deep waste water disposal. Between 2010 and 2013 there were 9,900 active deep waste water disposal wells in California relative to 8,600 in Oklahoma. And the California wells tend to be deeper.

More than 75 percent of the state’s oil production and more than 80 percent of all injection wells are in Kern County, central California, which happens to be close to the largest earthquake in the region over the past century on the White Wolf Fault: Mw7.3 in 1952. In 2005, there was an abrupt increase in the rates of waste water injection close to the White Wolf Fault, which was followed by an unprecedented swarm of four earthquakes over Magnitude 4 on the same day in September 2005. The injection and the seismicity have been linked in a research paper by Caltech and University of Southern California seismologists published in 2016. One neighboring well, delivering 57,000 cubic meters of waste water each month, was started just five months before the earthquake swarm broke out. The seismologists found a smoking gun, a pattern of smaller shocks migrating from the site of the well to the location of the earthquake cluster.

To summarize – we know that raising fluid pressures at depth can cause earthquakes, as is the case in Oklahoma, and also in Kern County, CA. We know there is circumstantial evidence for a connection between specific damaging earthquakes and oil extraction in southern California in the 1920s and 1930s. According to the location of the next major earthquake in southern or central California, there is a reasonable probability there will be an actively managed oilfield or waste water well in the vicinity.

Whoever is holding the liability cover for that operator may need some deep pockets.

“Computers Do the Calculating to Allow People to Transform the World.”

The quote above is from Conrad Wolfram, the renowned British mathematician, well known as an advocate for the advancement of mathematics teaching.  He argues that teaching students how to calculate using computers is more effective and more liberating than teaching calculation by hand. In his talk at TEDGlobal 2010, he describes his four-step process to solve a math problem:

  1. Pose the right question
  2. Formulize the question
  3. Computation
  4. Verifying that the computation answered the question

Currently, Wolfram believes 80 percent of math education focuses on step three – computation – and teaching people how to compute by hand.  Instead, he proposes “…we ought to use computers to do step three, so students can spend much more effort on learning how to do steps one, two and four – conceptualizing problems, applying them.”

The proper development and utilization of modern computer systems, including hardware and software advances, should enable Wolfram’s vision to come true, with users moving their allocated time away from calculations and process – stage three issues – and moving it to conceptualizing problems and applying the solutions effectively. And through my recent hands-on experience, I am confident that Risk Modeler, powered by RMS(one)®, will truly allow risk analysts to modify that time allocation.  I shared my experience of Risk Modeler on the keynote stage at Exceedance, and I invite you to watch the video below.

4 Apr 2017 Blog - Josh-ellingson-video-image

 

 

 

 

 

 

 

 

In 1999, a Legend Was Born

Many of you reading this may not realize it, but RiskLink® celebrates its 18th birthday this September.  RiskLink was born in 1999, and for some of you, RiskLink started its cat modeling career before you did.  I can remember using RiskLink back then, and it is a testament to the quality of that product that it is still the predominant catastrophe modeling software.  I’ve grown up with it, many of us have, and with that kind of longevity and familiarity, it is no wonder that few people even consider or question what can be an elongated process involved in completing an analysis, using this bedrock of catastrophe management.

That process to access your analysis is a lot of work. File management, model profile management, financial perspective re-maps, system restrictions. Wolfram’s assumption looks reasonable, that up to 80 percent of your natural catastrophe modeling time is spent in this process.

We’ll celebrate 18 successful years of RiskLink, but the market is shifting to an embrace of big data analytics.  This creates great timing for Risk Modeler. Risk Modeler is built specifically to work with large amounts of data to remove the procedural, tactical component of your work and move it to an efficient and speedy system.

How Would You Use Your Process Time?

This reallocation of process allows you to spend more time using your experience and intuition to conceptualize, understand and guide your business more effectively.  You can start to ask and answer questions that anticipate the business’ needs.  You can spend more time proactively working on change management with your key stakeholders. You can work more directly with the underwriting teams to understand and differentiate risks more thoroughly.

Risk Modeler is an efficient interface between your insight and experience and the analytical power of cloud-based computing. It allows you to simply ask a question, and it delivers the answer.   Mr. Wolfram reminds us that, “…math is not equal to calculating. Math is a much broader subject than calculating…I think of calculating, in a sense, as the machinery of math. It’s the chore. It’s the thing you’d like to avoid if you can, like to get a machine to do.”

Modeling is more than process, which is the chore of risk modeling.  I am excited that Risk Modeler is that system capable of completing that chore for you. You can now unleash your energy, creativity, insight, and experience on improving your company, your industry and to help make the world more resilient.

For more information on RMS(one), a big data and analytics platform built from the ground-up for the insurance industry, and solutions such as Risk Modeler and Exposure Manager, please click here.

Day Four at Exceedance 2017

Thursday in New Orleans, and there was still much to see and learn on the final morning of Exceedance.

Attendees were taking advantage of all there was to offer in The Lab, including connecting with RMS experts for product demonstrations and training for the latest Version 17 and Risk Modeler developments.

23 Mar 2017 EXCD Emily P smaller

As mentioned in yesterday’s blog, attendance has been exceptional at Exceedance, and some track sessions have been so popular that Thursday’s agenda was updated to repeat the High Definition Modeling capabilities, Version 17 RMS® North America Earthquake and RMS® North Atlantic Hurricane Model Changes, RMS(one)® solutions, RMS roadmap and future solutions, and U.S. Flood Market tracks.

A Personal Message from Hemant

The RMS Exceedance Party (EP) Was the Place to Be!

Those who attended the EP Wednesday night at Generations Hall were treated to quite a party! Along with three separate spaces – each with its own New Orleans theme – many grooved to the music of Rockin’ Dopsie, Jr. and the Zydeco Twisters.

23 Mar 2017 EXCD EP party singer small

 

 

 

 

 

 

 

 

 

 

 

 

 

Mr. Dopsie (or perhaps it’s “Mr. Rockin’”) had the dance floor alive with revelers moving to the beat of local zydeco as well as hits from the past. The night was capped off with Café Du Monde serving their world-famous beignets.

A Final Note on Exceedance 2017

As Exceedance 2017 comes to a successful conclusion, all of us here at RMS want to thank those who came from around the globe to be in attendance.

This was truly “your” conference, and we hope you found value in listening to our keynote speakers on the big stage, as well as learning more about our exciting updates and new solutions that will enable you to own your view of risk, provide the flexibility you need to make decisions, operate more cost-effectively, and create resilience.

As we move beyond this year’s Exceedance, RMS is ready to meet its commitments as we remain on track for a full schedule of delivery throughout 2017!

Day Three at Exceedance 2017

It’s Wednesday, which meant another full day of sessions, presentations, The Lab, a networking event, and more, happening here in New Orleans.

22 Mar 2017 - The Lab EXCD small

Attendance has been exceptional at Exceedance, and some track sessions have been so popular that we are repeating a few of them. For those of you here in New Orleans, the sessions will repeat on Thursday morning, starting at 10 a.m. Be sure to check the Exceedance app for details.

The main theme of the morning’s general session was a demonstration of how RMS is working to help clients explore and manage new and emerging perils, as well as applying RMS model expertise to long-standing lines. Speakers included Mike Steel, Christos Mitas, Robert Reville, Steve Jewson, and Andrew Coburn.

Wednesday Highlights

A few of the highlights of the day’s sessions included:

  • Christos Mitas took us deep into what he described as the unique and exceptional world of cyber terror and cyber risk modeling, with insights that included the upcoming (April 2017) launch of the RMS Cyber Accumulation Management System CAMS v. 2.0.
  • Robert Reville from Praedicat explored product stewardship and product liability risk, explaining the causes of liability accumulation, how the risk of major technological innovation is not known, and how risk accumulation can go on for years.
  • Steve Jewson transported us to India and China, presenting new agricultural risk models – including drought models for four countries. Agricultural risk is one of the top concerns for our clients in Asia-Pacific and Latin America, offering the market exciting growth opportunities.
  • Andrew Coburn from RMS and Dr. Hjörtur Thráinsson from Munich Re combined to present the RMS strategy of a single data standard for all lines and classes of insured exposure, as well as opportunities to generate exposure analytics for more business lines, a single client, or a single location.

Our Second Theme – Resilience – Personified.

The afternoon general session focused on resilience, and the exceptional work happening here in New Orleans over the past several years. Paul Wilson began by acknowledging the accomplishments of Build Change, a partner organization to RMS that continues to build resilience in emerging nations.

He then walked the crowd through a brief history of New Orleans – a city that has been built, and rebuilt, on its experience with hurricanes – before introducing keynote speakers Tanya Harris-Glasow of the Make It Right Foundation, and Jeff Herbert, chief resilience officer for New Orleans. The success of the city following Hurricane Katrina stems from the efforts of innovators like them, and their stories of strength, perseverance, teamwork, and inspiration, truly personify the theme of resilience.

The session continued with Dr. Robert Muir-Wood’s discussion on risk modeling and resilience in Louisiana, and concluded with remarks from RMS President Mike Pritula, who spoke on a variety of topics including his commitment to concentrate on RMS clients, and the challenge of embracing the inevitable change that technology is bringing to the catastrophe modeling community.

The Lab is the Hot Spot in New Orleans!

Customer feedback about The Lab continues to be extremely positive – with a lot of great conversations, product demos, and training sessions focusing on the latest developments from Version 17 and Risk Modeler to help customers choose the best routes for adopting new solutions for 2017 and beyond.

Get Your Mojo Rising on at the EP Tonight!

Last night’s well-attended masquerade in The Lab is now a happy memory. And far as we can tell, everyone removed their masks in time for the first general session this morning.

22 Mar 2017 - Masked Ball Small

But if you’re here at Exceedance, our legendary “EP” is coming up tonight – offering three tastes of New Orleans in one unique location – Generations Hall, built in the 1820’s and originally a sugar refinery.

With three themes, Jazz Night Club, Mardi Gras, and Louisiana Cajun, be ready to put on your dancing shoes and show us your voodoo.

Thursday is our final day in New Orleans, so please check back tomorrow for highlights and a message from Hemant!

Day Two from Exceedance 2017

Tuesday dawned bright and sunny in New Orleans as Exceedance got underway.

More than 900 attendees joined Hemant and eight keynote speakers during the Exceedance General Session. Attendees learned how RMS continues to deliver on its client commitments with the launches of significant capabilities ranging from Version 17, including the new Version 17 RMS® North America Earthquake Model, Version 17 RMS® North Atlantic Hurricane Model, and Risk Modeler powered by RMS(one)®.

In addition to Hemant, Larry Orecklin from Microsoft took to the stage along with Emily Patterson, Mark Powell, Chris Folkman, Emily Grover-Kopek, Josh Ellingson, Ryan Ogaard and Eric Yau.

Tuesday Highlights

“Exceedance is a key part of our continuing dialogue with clients around their needs and priorities, discussing how we can better align to help meet their business goals.”

Hemant Shah, co-founder and CEO of RMS

Hemant demonstrated the superiority of the Version 17 North America Earthquake (NAEQ) Model through a personal anecdote. As you’d expect, Hemant ran the data on his own house through the model and found that his risk is down 27 percent on an expected loss with risk load factor. #lowerhemantspremium

Eric Yau announced that Risk Modeler, powered by RMS(one), will be ready for general availability in April, and described our continued commitment to RiskLink® as a standalone product, as well as being an integral part of the RMS(one) platform.

Josh Ellingson described how Risk Modeler will empower analysts to spend more time understanding the drivers of risk and applying their creativity to expand their book business by collapsing the manual processing of their modeling workflow.

Build Change

The Lab is Where It’s At!

With The Lab in full swing, attendees took advantage of the opportunity to engage directly with RMS experts – getting up-close insights and training on the RMS(one) platform, Version 17 North Atlantic Hurricane Model and North America Earthquake Model, and much more. It’s truly where the action is!

The Mini Theater

Not to be outdone by The Lab, the Mini Theater on Tuesday played host to three insightful and engaging presentations focused on building resilience in an ever-changing world. Topics included Enhancing Urban Resilience: Managing Risk to Critical Infrastructure; Stories from the Field: Nepal Impact Trek with Build Change, and Road to Coastal Habitats in Managing Natural Hazards.

Monday RMS Welcome Reception a Hit

Last night’s RMS Welcome Reception was a hit – and not just because of the live jazz music. The well attended two-hour welcome event included plenty of mingling, great discussions, and delicious bites.

Put on Your Mask and Come to the Party!

For those of you in attendance at Exceedance, join us in The Lab from 6:00 to 8:00 p.m. to celebrate our special New Orleans-themed masquerade (no costumes required, but masks will be provided). It will be a fun evening where you can engage with RMS leaders, scientists, and strategists as they reveal the latest RMS solutions.

Check back tomorrow for more highlights from Exceedance 2017!

 

Day One from New Orleans – Exceedance Is Under Way!

New Orleans is known for its unique cuisine (crawfish, anyone??), cool music (the birthplace of jazz), Mardi Gras (party!!) – and for the better part of this week – Exceedance 2017.

Exceedance 2017

 

 

 

 

 

 

 

 

 

Yes, Exceedance is finally here, and we’re looking forward to an exciting line up of informative sessions, up-close training, engaging speakers, and networking opportunities. For those of you who can’t join us at Exceedance this year, look for highlights on Twitter and here on the blog, as we publish throughout the event.

Welcome Reception

Get set to mingle tonight at the RMS Welcome Reception, from 6:00 to 8:00 p.m. in Vitascope and the 8 Block Bar at the Hyatt Regency. It’s the perfect venue to enjoy savory hors d’oeuvres, catch up with friends, colleagues, and RMS staff members, and soak up some authentic jazz.

Ready, Set, Go!

RMS has listened and worked closely with our clients to innovate the type of solutions that support their strategic business needs.  In 2017, we’re delivering on these commitments with a significant set of capabilities ranging from Version 17 (including highlights such as the RMS® North Atlantic Earthquake model and the RMS® North America Hurricane Model), to Risk Modeler.

Over the course of the next three days you’ll be able to choose from 105 sessions across 23 different tracks, three General Sessions, The Lab and Mini Theater with up close training that only Exceedance can offer. Exceedance is where the latest modeling, analytics, and technology all come together!

Don’t forget, you can check on events, tailor your schedule, review session times, set up meetings – all with the Exceedance 2017 Mobile App. If you haven’t downloaded it, go to your app store and search for “Exceedance”.

We’ll keep you posted via this blog on each day’s highlights, so check back. And welcome to Exceedance!

A Few Words About Exceedance Before You Go

If you are joining us in New Orleans for Exceedance 2017 in just a few days from now, I wanted to send a quick reminder of all there is to see and do, starting Monday with our pre-conference activities.

Get Ready for 22 Tracks, 105 Sessions, The Lab, Keynote Speakers, and Hands-on Training Opportunities

The Exceedance agenda reflects our commitment to deliver value to clients in a rapidly changing market, including new solutions to increase operational effectiveness, agility, resilience, and business growth.

You’ll have many opportunities to dive deep into more than 20 new models, including the RMS® North America Earthquake Model and the RMS® North Atlantic Hurricane Model, major advances in science, software, and HD-simulation models, The Lab, and more.

For information on the keynote speakers, tracks and sessions, and The Lab, visit the conference website exceedance.rms.com.

French Quarter New Orleans

All Work and No Play? Not at Exceedance!

Along with experiencing all there is to discover and learn at Exceedance, there are plenty of opportunities to relax and have some fun with the following pre-conference and evening activities:

  • RMS Welcome Reception: Get set to party as Exceedance kicks off in style with a jazz-flavored welcome reception on Monday evening.
  • Evening Reception in The Lab: Tuesday night offers a festive celebration of New Orleans’ tradition with a colorful masquerade party (masks provided) – in The Lab. You’ll also have a chance to engage with RMS leaders, scientists, and strategists as they reveal the latest RMS solutions.
  • Exceedance Party (EP) “A Taste of New Orleans”: Evening festivities conclude on Wednesday with “A Taste of New Orleans,” including three “can’t miss” hallmarks of New Orleans: Jazz Night Club, Mardi Gras, and Louisiana Cajun. Be ready to put on your dancing shoes and show us your voodoo…

Watch for Our Daily Blog During Exceedance

We will be posting a daily blog on these pages during Exceedance to give you a round-up of the highlights so far including sessions, The Lab, keynote speakers, special events, and more.  Please keep an eye out for it!

See you soon in the Big Easy.

The Age of a Roof and The Price You Pay: New Analysis of Hurricane Risk in the U.S.

RMS has completed research on hurricane risk to single-family dwellings using an improved understanding of roof age, which can lead to more accurate loss projections using our models

Residential gable end roof failure in the Bahamas, observed following Hurricane Matthew

Residential gable end roof failure in the Bahamas, observed following Hurricane Matthew

Weak roofs mean losses during hurricanes. During reconnaissance trips to the southeast U.S. and the Bahamas following Hurricane Matthew last fall, RMS experts saw ample evidence of this simple fact.  Their on-the-ground survey highlighted everything from shingle and tile damage to complete roof failures.

Roof weakness significantly influences RMS’ view of structural vulnerability in our North Atlantic Hurricane models, which can factor in a roof’s age, covering, and shape into calculations of potential loss. However, this valuable property data is not captured by many insurers, and this could represent a missed business opportunity to improve underwriting – whether it be pricing or risk selection.

Extending the Data, Refining the Insights

RMS already has a dataset of hurricane claims from over one million single-family dwelling (SFD) homes in Florida and the northeast U.S., representing $240 billion in total insured value. However, this dataset lacks roof characteristics for a majority of the homes, so we augmented it with roof age information obtained from BuildFax, which holds detailed building characteristics for over 90 million properties in over 10,000 U.S. cities and counties. From this enhanced dataset we found:

  • About 70 percent of Florida homes (SFDs) had roofs aged 10 years or older at the time of the 2004-05 hurricanes
  • Roughly half of the Northeast homes (SFDs) had roofs aged 20 years or older at the time of Superstorm Sandy (2012)
  • Only 20% of all homes (SFDs) still had their original roofs, although this proportion was lower for coastal properties than for inland properties

So what was the relationship between roof age and losses? In the second stage of our research, our vulnerability modelers paired the exposure data with 182,000 hurricane claims, totaling $2.25 billion in paid losses, to look for patterns related to roof age.

graph claim severity 1

Normalized severity of Florida claims from the 2004-05 hurricanes, by roof age and selected wind speed bands, for all risk classes

Normalized severity of Northeast claims from Sandy, by roof age and selected wind speed bands, for all risk classes.

Normalized severity of Northeast claims from Sandy, by roof age and selected wind speed bands, for all risk classes

 

 

 

 

 

 

 

 

 

As expected, we found that homes with older roofs generally corresponded with more claims, and claims of greater severity. This was most evident at the low wind speeds experienced in the Northeast U.S. during Superstorm Sandy, as well as at higher wind speeds experienced in the Florida hurricanes. These graphs show that buildings in Florida with a roof older than 20 years are associated with claims that are between 50-100% more severe, compared with buildings having a roof less than five years old. A similar trend appears in the Northeast, but is muted because of the smaller dataset.

That’s the picture from historical data. But what about modeling potential future events? To answer that question we analyzed the enlarged Florida dataset, focusing on how roof age at a particular location compares to the industry average for that region.

patchwork map

Change in modeled AAL by Florida county when including roof age information from BuildFax

The change in modeled average annual loss (AAL) by county shows a patchwork of increased and decreased risk that corresponds to the average roof age of properties in each county.

So we can see that using roof age data leads to significant differences in modeled loss within regions.

That’s a valuable insight in itself. But we decided to drill down a little deeper.

 

 

 

From counties to ZIP codes to individual locations

Although the maximum change in AAL was less than 10% at the county level, changes of up to 20% were observed at the level of ZIP codes. These results show that improved understanding of predominant roof age could influence a company to change its regional underwriting strategy or refine its rating territories.

Going more granular still, within each county and ZIP code there is variation in the roof age of individual homes and this is critical to consider when writing new business. The scatter plot below shows the change in AAL at individual locations. Those homes with older roofs produce higher than average AAL and vice versa.

red blob map

Change in modeled AAL by location when including roof age information. “Location AAL” (x-axis) represents AAL without roof age

So when we go down to the level of individual locations the impact of roof age data leads to loss changes of up to 50%, demonstrating higher significance than at the regional level. For high hurricane risk locations in Florida with large baseline AALs, this change translates into substantial dollar amounts. That’s crucial to know, revealing key opportunities to improve underwriting practices. For instance, companies might choose to quote more competitively on price for properties with newer roofs.

Unsurprisingly, over time strengthened building codes and practices have led to stronger roofs that are more resilient to hurricane damage. But this research tells us much more – the sheer magnitude of modeled loss changes observed was significant, with clear implications for profitability, as explained by BuildFax CEO Holly Tachovsky:

“These results reveal key opportunities to improve underwriting practices, including pricing and risk selection. A focus on roof age can be the difference-maker for loss ratios in certain geographies. As a result, we see a growing level of sophistication among carriers that want to rate and select with a higher degree of accuracy.”

RMS remains committed to partnerships with industry experts like BuildFax to communicate the business benefits of emerging trends in the (re)insurance space.

Hurricane Risk on the U.S. East Coast: The Latest RMS Medium-Term Rate Forecast is More Than Just a Number

For the meteorologist in me, hurricane and climate research is fascinating in its dynamism. The last two years have seen continuous scientific debate about the state of Atlantic basin hurricane activity, which we’ve reflected on thoroughly in the RMS blog.

But for the insurance industry, it’s more than just a fascinating debate: business decisions depend on clear insight. It’s more than just a number.

In April with the release of the RMS Version 17 North Atlantic Hurricane Model, we will include the latest biennial update to the industry’s long-term rates, in addition to the RMS medium-term rate forecast.

For the first time since its introduction, the RMS medium-term rate forecast has dipped slightly below the long-term rate.

For the U.S. as a whole, the new 2017-2021 medium-term rate forecast MTRof hurricane landfall frequency is now one percent below the long-term rate for Category 1–5 storms, and six percent for major hurricanes (Category 3–5 storms).

Mind the Tail

The impact of the rate changes on the view of risk will vary from portfolio to portfolio. Measuring the new medium-term rate against the RMS Industry Exposure Database, we see a 16 percent decrease in the U.S. average annual loss (AAL) relative to the previous medium-term rate forecast – mainly driven by lower risk in Florida and the Gulf.

However, to focus solely on the headline AAL-based changes, or the national impacts, ignores the risk implications of the unique atmospheric conditions and key features of the new forecast.

At the 250-year return period, the decrease is more muted – at eight percent – which positions the medium-term rate slightly higher (one percent) than the long-term rate. Unlike with previous below-average periods, persisting warm sea surface temperatures in the Atlantic continue to indicate that the medium-term rate risk remains above the long-term rate in certain key U.S. regions, such as the Northeast.

The Science and Process Underpinning the Medium-Term Rates

Grounded in objective science, we follow a systematic process to develop the biennial medium-term rate each time we update it. We analyze 13 different statistical climate models, which all provide a five-year forecast of activity for the Atlantic basin.

The climate models reflect three main theories of hurricane variability in the Atlantic over recent decades:

  • Shift models identify historical, multi-decadal periods of high or low hurricane activity, which are viewed as natural, inevitable oscillations
  • Sea surface temperature (SST) models identify relationships between SSTs and hurricane landfalls in the past and use these to predict similar patterns in the future
  • Active baseline models suggest that the low activity phase of the 1970s and 1980s was caused not by natural variability, but by high levels of atmospheric aerosols which are not expected to recur in the future

To provide a more reliable forecast, we take a weighted average across all 13 models – based on tests made of each model’s predictive “skill.” These tests compare how well the models predict hurricane activity in sample periods from the past, against what occurred. This rigorous testing process is revisited with each release of the medium-term rate.

The Latest Data – How Do the Climate Models Interpret It?

The new medium-term rate forecast uses updated information from the HURDAT2 hurricane dataset and the latest sea surface temperature data, including the 2014 – 2016 seasons.

MTR2

North Atlantic Basin major hurricane counts, 1970-present

The updated hurricane data reveals a four-year stretch of below-average Atlantic major hurricane activity between 2012 and 2015, leading to a five-year average trend that is decreasing.

MTR3

North Atlantic Basin main development region sea surface temperatures, 1970-present

On the other hand, sea surface temperatures over this same period have been rising. Energy derived from warm temperatures serves as an important driver for hurricanes – so you would expect to see an increasing rate of hurricanes, not fewer.

When the data is fed into the climate models they do not point in the same direction for future hurricane activity.

The shift models used in our medium-term rate forecast focus on the decrease in major hurricanes and identify the seasons since 2011 as statistically distinct from acknowledged active periods observed since 1950. This could be significant because it may indicate a transition to a quieter phase of hurricane activity, as discussed in Nature Geosciences.

But while the shift models indicate this transition, both the sea surface temperature and active baseline models do not identify a similar transition to a less active hurricane phase, in part based on the warmer Atlantic sea surface temperatures.

It’s Not Just a Factor

As I discussed earlier, the medium-term rate considers multiple drivers of hurricane activity, including sea surface temperatures. Peer-reviewed research highlights the influence of sea surface temperatures (SSTs) on hurricane tracks; thus, analysis of projected SSTs provides different forecasts not only of where along the coastline hurricanes are likely to occur, but at what strength hurricanes will make landfall. This is a process that RMS terms regionalization.

During higher sea surface temperature periods, the body of warm water over which hurricanes develop expands eastward towards Africa. This expansion increases the likelihood that hurricanes re-curve away from the eastern U.S. coast, towards the northeast and maritime Canada, following paths similar to hurricanes Irene and Sandy.

In the medium-term rate forecast it is regionalization that causes forecasted activity in the U.S. northeast and mid-Atlantic to be above the long-term average, despite a below-average forecast for the U.S. as a whole. This creates a pattern that differs from normal climatological expectations, which would typically be focused on the risk to Texas and Florida – although, obviously, in those southern states the risk does remain higher in absolute terms.

The forecast’s regionalization also produces slightly above long-term risk beyond the 100-year return period, on the industry U.S. exceedance probability curve. At the 250-year return period, for example, while the new medium-term rate has decreased risk by eight percent, the new forecast remains one percent above the long-term rate. Despite decreases in the forecasted frequency of large loss-causing, tail events in Florida and the northeast U.S., warm Atlantic sea surface temperatures continue to support the possibility of these events occurring at a rate above the long-term average.

Delivering the Model

Pre-release data sets for the new medium-term rate are now available in advance of the April release of the updated RiskLink® Version 17 North Atlantic Hurricane Models. These are accompanied by technical documentation describing the process’ methodology and its impact on risk. It will also be concurrently available within Risk Modeler on the RMS(one)® platform.

For further insights from RMS experts on the new forecast, as well as on model updates and the latest on the RMS(one) solutions platform, join us at Exceedance in New Orleans, March 20-23.

Exceedance 2017 – Coming in Just a Few Weeks!

It’s hard to believe but Exceedance 2017 will be here in just a few weeks, and the excitement is building!

Exceedance_6Feb2Many companies are sending their cross-functional teams to fast track their ability to put new capabilities to work. And with good reason. With the releases of Risk Modeler on the RMS(one)® platform and Version 17 in April, attendees will experience more tracks (22) and more sessions (105) than in previous years.

There will also be many opportunities for interaction with model experts, up close team training, networking opportunities, and so much more. Enabling your success is the driving force behind Exceedance!

Here are some highlights of the topics we are preparing for you and your team:

  • Risk Modeler powered by RMS(one): You will obtain a deep understanding of the modeling and analytics that provide the core of the Risk Modeler workflow, including setting up analyses, creating structures and positions, and accessing models from multiple RiskLink® versions for key use cases such as change management, modeling reinsurance programs, and analyzing insurance portfolios.
  • Version 17 North America Earthquake: The changes to the North America Earthquake Models represent the latest view of risk across the U.S., Canada, and Mexico. We will provide the full scope of the update by delving into the model components, including our unique implementation of the latest source models from the USGS, directional loss changes by region and line of business, and detailed loss change exhibits.
  • Event Response: How did your business respond to Hurricane Matthew? Learn what we are doing to enhance RMS Event Response, including future offerings, making it work for your business, addressing the main challenges faced during a real-time event like Hurricane Matthew, and more.
  • U.S. Flood Model: Flood risk management is becoming an increasingly important peril to manage for the insurance industry in the U.S. We’ll provide the latest details on all model components, including the simulation-based model methodology, the innovative vulnerability components of the upcoming RMS U.S. Flood HD Model, and how best to capture opportunities in the evolving U.S. flood market.

The Lab at Exceedance: Solutions, Model Releases, and In-Depth Training with RMS ExpertsExceedance_6Feb

The Lab will be packed with our latest modeling and software releases, in addition to special areas dedicated to research from Horizons (RMS scientific publication) and resilience initiatives across the globe. Over 50 RMS scientists and modelers will be in The Lab to offer technical insights, training, and support – and will be available for personalized discussions.

There’s a Lot to Be Excited About

This is an important year for all of us in the industry, and RMS is ready to meet our commitments to you as we remain on track for a full schedule of delivery throughout 2017. If you’re attending, be sure to let your colleagues know about all Exceedance has to offer.

To see the full agenda with information about the tracks and sessions, The Lab, speakers, networking events, and more, visit the conference website at: exceedance.rms.com. You can also register for Exceedance here. Look for our next blog with more exciting Exceedance updates in the coming days!