NEWARK, Calif. - July 31, 2013 RMS, the world's leading catastrophe modeling firm, today announced the release of its North Atlantic hurricane model suite, version 13.0. This model release delivers the ability to fully quantify the risk from catastrophic hurricane-driven storm surge, and includes new insights into future hurricane activity levels.
"Hurricane Sandy revealed just how real storm surge risk is," commented Dr. Claire Souch, vice president, model solutions at RMS. "Our model shows there is a 20 percent chance that storm surge loss will be greater than wind loss for any U.S hurricane that makes landfall, which rises to almost 40 percent along the northeast coast of the United States – this is a risk the market can no longer afford to ignore."
The version 13.0 model builds on RMS' revolutionary storm surge methodology, which was initially launched in 2011. It is the first model to simulate the interaction between wind and surge throughout the entire lifecycle of each hurricane using a state-of-the-art hydrodynamic model.
The model release includes new data that enables insurers to distinguish between the potential losses from residential and commercial lines of business. Both lines have very different levels of market exposure – commercial and industrial lines typically drive the bulk of the total insurance loss from storm surge – and cannot be treated with the same assumptions.
Souch added, "Most insurance policies for commercial and industrial lines provide some level of coverage for flood loss, so having an accurate view of storm surge risk is critical to capital management and risk transfer decision-making, through to the structure and placement of cat bonds."
In contrast, the insured loss potential for homeowners and small business owners is lower than the larger commercial and industrial lines – although some market risk does exist from excess – National Flood Insurance Program (NFIP) flood insurance policies.
RMS has also issued a new medium-term rates forecast, which incorporates new scientific findings into the impact that sea surface temperatures have on U.S. landfall. The unique research, conducted by RMS scientists, shows how increased hurricane activity in the Atlantic Basin is not always converting to a proportional increase in hurricanes making U.S. landfall. The new findings are currently under peer review.
"Our medium-term rates forecast provides a five-year probabilistic forecast that is unique both within the insurance industry and the academic community. Our forecast gives insurance companies an additional view of the risk that may be more appropriate to future climate conditions, as opposed to using averages of historical activity," said Souch.
Version 13.0 also incorporates the most current data from the Federal Emergency Management Agency's (FEMA) 2012 flood insurance rating maps, as well as updated information on in-force NFIP policies. Accurate building elevations data is a key determinant to the accuracy of storm surge loss estimates.
"The most sophisticated catastrophe models combine high-resolution data, advanced scientific knowledge and a solid understanding of market practices. With version 13.0 RMS has once again taken the lead to give customers a stronger, sounder platform to assess their hurricane risk," said Souch.
The North Atlantic hurricane model suite is being released in RMS' RiskLink® 13.0 and RiskBrowser® 13.0 risk modeling platforms, and will also be available on RMS(one)™ at launch in 2014.