RMS

RMS Advances View of U.S. Hurricane Risk 

Calif – February 28, 2011 – Today Risk Management Solutions (RMS) released a major upgrade to its U.S. Hurricane Model, incorporating significant new datasets and scientific developments to advance the industry's view of U.S. hurricane risk. With 10 times more onshore and offshore wind observation data since the last hazard update in 2003, the model has been described as utilizing "the most complete historical observation archive currently possible for quantifying hurricane risk," by Associate Professor Robert Hart at Florida State University.

Leveraging the latest advancements in computing power, RMS has run thousands of storm simulations – as many as 40 times more than are in the historical record – to generate the most detailed modeling study ever designed to understand the way hurricanes decay over land, providing greater insight into hurricanes post-landfall. These methodologies, which have been published in peer reviewed literature, have more skill at estimating tropical cyclone intensity over land than models informed solely by the limited historical record. In addition, more powerful computing capabilities have been applied to largest deployment of a storm surge model to date.

"Coupled with the wind model, the storm surge model simulates the build-up of storm surge and wave action in the open sea, and links the two as a storm changes in intensity, size, and speed, as we saw with hurricanes Katrina and Ike," explained Dr. Claire Souch, vice president of natural catastrophe and portfolio solutions at RMS.

Building Performance

Forensic analysis of more than US$18 billion of claims data from the past 20 years combined with detailed engineering research drive the changes to building vulnerability assessments in the new model. In particular, research after Hurricane Ike in 2008 has provided new insights into building performance in Texas.

"Claims analysis from Hurricane Ike reveals that roofs were damaged at much lower wind speeds than expected, given the understanding of construction quality and building codes," said Dr. Claire Souch. "Following the results of our analysis, we worked closely with engineering consultants to re-examine code enforcement and building practices throughout the U.S. hurricane states, including in regions where there have been few recent hurricane landfalls to really test the building stock."

Climate factors such as high intensity ultraviolet irradiation, high humidity, and large annual variation in rainfall were also found to significantly reduce the durability of certain roofing systems in Gulf States.

To ensure robust validation of the new model, RMS methodologies and applications of the latest scientific approaches have been peer-reviewed and published in research journals. As part of this process, Dr. Robert Hart, associate professor of meteorology at Florida State University, commented: "Considerable new research and datasets have been incorporated into the new model, leading to an improvement in the regionalization of risk estimates."

The model output has also been validated against industry loss reconstructions for more than 20 landfalling hurricanes that caused total insured losses in excess of US$180 billion (in 2011 value) since 1985.

Changes in Risk
As a result of the model changes, RMS expects to see wind risk increase for all hurricane states on an industry-wide basis. However, individual portfolios will differ considerably depending on the region and line of business. On a wind-only basis, portfolios concentrated along the coast will show the smallest increase in wind losses, and may even decrease in some regions. Portfolios consisting of non-coastal exposure and commercial or industrial business will generally show the largest increases.

"It's important to remember that Florida remains the main driver of industry risk, but our view of other regions has changed because of significant new information gathered over the past several years. Texas and the Gulf states now contribute more to the overall risk profile than before," said Dr. Claire Souch.

Changes in loss results in the market portfolios analyzed by RMS typically range between +20% to +100%. However, there are extreme cases above and below this; in particular, concentrated portfolios will see changes outside of the typical range, including some decreases.

Storm surge impacts will vary considerably according to the geographic makeup, lines of business, and data resolution of each portfolio. However, risk could increase in coastal locations due to the combined impacts of wind and storm surge, especially for commercial and industrial lines, which often cover surge-driven flood losses. The impact of surge will typically be lower for residential lines, as policies are usually wind-only.

In addition to version 11.0 of the RMS® U.S. Hurricane Model, RMS will be releasing new and updated hurricane models for the North Atlantic Basin, including the Caribbean, Canada, Mexico and Central America (Belize, Costa Rica, Guatemala, Honduras and Nicaragua).