RMS publishes final U.S. Paradex estimate for hurricane Irene

Risk Management Solutions (RMS) have finalised their modelling work to estimate final index values from their Paradex tool for hurricane Irene which hit the U.S. eastern coastline recently. The final Paradex index value is $2.82 billion which is 85% attributed to residential losses.

The value is based on the RMS Paradex U.S. Hurricane modelling tool, which comprises an index used to estimate insured industry losses from wind and storm surge for U.S. hurricanes, and includes automobile, commercial, and residential modeled lines of business. Losses from rainfall-driven flood are excluded. Paradex estimates are used to support structuring, placement and creation of triggers for catastrophe bond transactions in the insurance linked securities market.

Only one outstanding catastrophe bond which we have information on uses the Paradex index value to determine whether it has been triggered by a U.S. hurricane. Montana Re Ltd. Series 2010-1 issued in December last year is triggered based on county level Paradex figures. The Class E notes issued by Montana Re have exposure to hurricane Irene as they had been activated by the Japanese earthquake in Tohoku in March bringing them on risk. However, it’s widely thought that the Paradex value reported is not going to be sufficient to trigger any loss to these notes meaning that sponsor Flagstone Re are unlikely to be able to recover any of their losses from Irene.

The index uses data collected from the WeatherFlow Hurricane Network observed during the passage of hurricane Irene. These stations captured the highest wind speed at 92.2 mph at Fort Macon in North Carolina. A total of 95 weather stations (around a quarter of which were WeatherFlow locations) recorded wind speeds in excess of 50mph, and successfully gathered data along the path of Irene.

RMS announced a U.S. insured industry loss estimate of between $2 and $4.5 billion for hurricane Irene last week. The estimate excluded inland flood losses from heavy rainfall and all National Flood Insurance Program losses from surge and rain (with a further $0.5 – 1 billion for the Caribbean). RMS’ industry loss estimate takes into account additional drivers of loss not captured by the Paradex index, such as power outages and tree-fall damage, as well as an evaluation of observed damage from the event.