RMS updates European Windstorm and Atlantic Hurricane models

New risk models for European windstorms and North Atlantic hurricanes have been released by RMS, offering insurance, reinsurance and ILS market users the ability to make enhanced risk selection and portfolio management decisions.

A world leader in catastrophe risk management, RMS has announced the release of its newly updated software, version 15.0 RMS Europe Windstorm Models and RMS North Atlantic Hurricane Models, the firm recently reported.

Matthew Grant, General Manager, models and data at RMS said; “RMS’s version 15.0 models deliver even sharper risk differentiation to help our clients further optimize their risk selection and more efficiently allocate capital.”

Adding; “We’ve built on the models’ existing methodology and incorporated several years of new data and scientific research to deliver the most accurate representation of the risk.”

Up to date risk models are key to the reinsurance, insurance-linked securities (ILS) and catastrophe bond sector, to aid capital allocation, underwriting decision-making and ultimately the pricing of risks.

Just last month European windstorm Niklas caused widespread devastation, most notably in Germany, but also impacted parts of the UK, Poland and other European countries.

With AIR Worldwide and Aon Benfield both estimating insured industry losses from the event will likely exceed $1 billion.

As global asset values continue to rise, along with the world’s population, any advancement in the understanding of international perils is vital in providing adequate protection and sufficient recovery efforts post-disaster.

RMS provided an example of the benefits insurers, reinsurers, insurance-linked securities (ILS) and similar property catastrophe risk transfer players can now utilise with its latest version of the tools.

“The Europe Windstorm Models’ hazard and vulnerability components have been updated to strengthen risk selection and portfolio management capabilities, and a new view of risk reflecting climate variability has been added, enabling companies to better understand windstorm variability and support Solvency II model validation requirements,” said RMS.

The enhanced models enable users to examine how climate changeability can effect the perception of risk, which Grant notes also contributes to Solvency II model requirements.

He said; “By adding the climate variability component we’ve provided our clients with a transparent model validation process to meet Solvency II regulations, as well as a means to better understand how historical storm variability can affect their modelled losses.”

Adding; “Since storm activity in recent years has been relatively quiet and most insurers’ claims records only date back 10 to 20 years, the new climactic view provides our clients with an important perspective to develop a more complete view of the risk.”

Regarding the updated North Atlantic Hurricane Models, RMS declared these “have new capabilities to manage coastal flood risk and have been fully updated with the latest science and data on hurricane activity.”

With the firm highlighting the use of significant analysis from almost $3 billion in claims data following Hurricane Irene in 2011, and Superstorm Sandy in 2012 as inputs to the updated Atlantic hurricane risk model.

This again is of high importance to the risk transfer markets, as migration to coastal areas that experience elevated water stress levels, which can become amplified during a hurricane, is increasing year-on-year.

Emphasising this, Grant said; “North Atlantic hurricane risk continues to be a principle driver of total annual losses with storm surge contributing a high proportion of those losses.

“Our extensive post-Sandy claims data analysis revealed that basement-level property and contents damage contributed to a higher proportion of overall losses than previously expected, especially for commercial structures in central business districts.”

The improved North Atlantic models also boast a broader selection for users when choosing location-specific content triggers for business interruption losses, “by enabling business interruption to be dependent on either contents or building damage rather than on building damage alone,” explained RMS.

Discussing the new models benefits, Paul Miller, international head of reinsurer Aon Benfield’s catastrophe management team, said; “We are pleased by RMS’s development of an enhanced European windstorm model and that it offers increased transparency for users.  We look forward to evaluating the updated model with clients over the coming months.”

Despite relatively benign North Atlantic hurricane seasons in recent years, the consistent migration to coastal regions and rising asset values signals increased exposure levels for the future.

In light of this, and the recent wrath of European windstorms, all advancements within catastrophe modelling will surely prove invaluable to the risk transfer markets and the people and economies they protect.