RMS updates earthquake risk model for U.S., Canada, Mexico

Risk modelling and analytics firm RMS has released an updated version of its risk models for earthquake risks in the United States, Canada and Mexico, with the new version seen as a “major step forward in managing earthquake risk.”

RMS has released version 17.0 of its RMS North America Earthquake Models, with the inclusion of new scientific research and data providing a more comprehensive and granular view of seismic risk to its clients.

RMS said that it has invested more than 100 person-years of research and development into its new earthquake risk model version, adding that the updated model will help its clients to manage their risk accumulations with increased confidence, in order to help them to underwrite a better book of earthquake exposed insurance or reinsurance business.

Mohsen Rahnama, chief risk modeling officer at RMS, commented on the release; “The quality of the updated model is extraordinary and we overcame significant technical and computational challenges to deliver one which is suitable for not only portfolio management and risk transfer, but individual, more granular risk selection – all on a consistent and coherent basis. The model affords clients the rigorous insights needed to use capacity more efficiently, and successfully compete in today’s market environment.”

The new RMS model uses the U.S. Geological Survey (USGS) 2014 national seismic hazard model as its reference point, ensuring the data is as up to date as possible.

RMS actively collaborated with the USGS on the risk models development, preserving fidelity to the USGS model while keeping run-times practical, the company said. As a result, the modeled average annual loss (AAL), return period and tail risk hazard in the RMS model are true to those predicted by the full USGS event set.

The updated model also includes the potential for larger and more correlated earthquake events in California, as well as new views of risk for all regions of the U.S. It also includes induced seismicity, so it is the first risk model offering a way to analyse the risk of man-made earthquakes occurring across Oklahoma, Kansas, Ohio, Arkansas, Texas, Colorado, New Mexico and Alabama. This functionality will allow the risk of earthquakes caused by fracking to be analysed.

RMS has also taken insights from the Canterbury, New Zealand earthquakes in order to improve the liquefaction modelling for the U.S., Canada and Mexico within the updated earthquake model.

With U.S. earthquake risks making up a considerable portion of the outstanding catastrophe bond market and widely underwritten by the insurance-linked securities (ILS) fund market on a collateralized reinsurance basis, this updated model will be well-used in the ILS market and by capital market investors looking to invest in catastrophe insurance risks.

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