NEWARK, Calif. - February 10, 2014 RMS, the world's leading catastrophe modeling firm, today announced that it has released new views of risk for U.S. and Canada Severe Convective Storm (SCS) and China Typhoon. The new versions of these models provide enhanced risk differentiation, pricing and portfolio- management capability for two perils that are increasingly becoming drivers of annual and catastrophe losses for the industry.
“Recent seasons have shown that SCS losses are a material risk to the industry with a trend of increasing claims severity over time,” said Dr. Claire Souch, senior vice president, business solutions at RMS. “Our new SCS model shows that average annual losses from tornado and hail events now rank a close second to hurricane-driven losses, proving this peril is a material risk to the industry.”
RMS’ new view of risk is calibrated with the results of the company’s extensive analysis into location-level claims and exposure data, together with thousands of hail and wind observations and radar images from more than 70 new industry events that occurred in the past five years. The new insights will enable re/insurers and brokers to use the model output with confidence in their business decisions.
“The recent outbreak of U.S. severe convective storms have provided us with additional insight into the behavior of tail events. This has enabled us to reduce the uncertainty in the new model’s one in 100 return-period losses and provide an enhanced differentiation of risk between regions,” said Dr. Souch.
The model also incorporates new insights into the spatial nature of hail and tornado strikes to provide a more accurate view of the risk than ever before. Hundreds of new vulnerability curves have also been calibrated with new data to provide model users with greater confidence to write new lines of business or in new locations.
At the core of RMS’ U.S. SCS model is a unique, hybrid methodology that combines the strengths of numerical and statistical modeling techniques with historical data and claims calibration. The methodology enables RMS to fill in the gaps and manage the biases that are associated with incomplete historical data records. This enables model users to evaluate the potential future losses in regions where they have not sustained losses to date to inform their company’s business growth strategies and portfolio planning.
RMS’ China Typhoon model covers losses from storm-surge driven coastal flooding, rainfall-driven flood and wind to provide a complete view of China typhoon risk – a region where flood can contribute up to 80 percent of the total risk.
“The storm-surge potential along the Pearl River Delta and in Hong Kong is underestimated by the industry. This is a region that is experiencing major growth, but much of it is below sea-level,” said Dr. Souch.
RMS' typhoon model includes coastal flood for the entire China coastline. The model embeds a state-of-the-art fully dynamical storm surge model for Hong Kong that takes into account the complexities of the coastline: the water flows in and out of the harbor, including tides and the flood defenses of this coastal city, which represent a major exposure and risk concentration.
“Hong Kong is similar to New York in that it has a combination of high concentration of exposure at risk, a complex coastline, multi-directional water flows associated with the harbor and a network of flood defenses that require very detailed modeling,” said Dr. Souch.
For China, where almost 15 percent of the insured market is under construction, RMS has developed a specialized Builders Risk vulnerability model. The new model helps model users to characterize the unique vulnerabilities of buildings during each phase of the building construction. Underwriters can quantify risk by project type, construction class and construction phase.
Similarly, as a major global industrial manufacturer, China has a growing proportion of large industrial facilities. RMS' industrial facilities model has been developed to enable users to model property damage and business interruption from wind and flood-related Typhoon damage for these high-value complex combinations of construction and vulnerability.
“The 2014 version-modeled losses have been calibrated using 10 years of event loss data from 50 percent of the market. The large amount of industry data sourced for our China Typhoon model has helped to make great strides in reducing model uncertainty,” said Dr. Souch.