Risk Management Solutions (RMS) has announced the release of new views of risk for its U.S. and Canada Severe Convective Storm (SCS) and China Typhoon models as well as a launch date for its new exposure and risk-management platform, RMS (one).
The new views of risk for severe thunderstorm risk in the U.S. and Canada and typhoon risks in China provide enhanced risk differentiation, pricing and portfolio-management capability, said RMS. These two perils are increasingly becoming drivers of catastrophe losses for the insurance and reinsurance industry, so having access to the latest view of risk is important for practitioners.
Severe convective storms (SCS), so thunderstorm, tornadoes, hail and associated convective wind storms, create a signficant loss burden on the insurance and reinsurance industry. It is also a peril which is featured in a number of catastrophe bonds, so the improved view of risk from RMS will also be of interest to insurance-linked securities (ILS) managers and investors.
“Recent seasons have shown that SCS losses are a material risk to the industry with a trend of increasing claims severity over time,” commented 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 said that the new view of SCS risk is calibrated with the results of the 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 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,” added Dr. Souch.
The SCS 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, said RMS.
RMS’ U.S. SCS model features a unique, hybrid methodology combining 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.
China typhoon risk is a peril with the potential to become extremely important to the global insurance, reinsurance and catastrophe bond market in the future. As insured values increase in China the potential exposure to this peril is growing rapidly. It is expected that China typhoon risk will be transferred to both the traditional reinsurance and capital markets in increasingly larger amounts in years to come.
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% 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. RMS said 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,” commented Dr. Souch.
For China, where almost 15% of the insured market is under construction, RMS has developed a specialized Builders Risk vulnerability model. This new model helps model users to characterize the unique vulnerabilities of buildings during each phase of the building construction. RMS said it allows 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.
RMS has also announced the upcoming release date for its new risk modelling platform, RMS(one). Version 1.0 of RMS(one) will be released and made generally available on 15th April 2014, according to RMS. All of the RMS catastrophe models, as well as selected models from RMS ecosystem partners, will be available on RMS(one) version 1.0 when released.
RMS(one) has been developed and tested with the help of 1,000 people from 30-plus insurers, reinsurers and brokers worldwide.
“RMS is on track to deliver a platform that will enable us to develop a more insightful and robust view of risk – empowering management, underwriters and analysts with the information they need, faster than ever before,” commented David McComas, senior vice president, ERM, Tokio Millennium Re Ltd. “In today’s competitive marketplace it’s imperative that we have an in-depth understanding of risk information across a diverse range of data sources.”
“As a true platform for exposure and risk management, our clients understand that RMS(one) is far more than just a next generation of catastrophe-modeling software,” said Hemant Shah, co-founder and CEO of RMS. “The on-time release of v1.0 will be a major milestone along a journey towards transformational benefits for our clients, and we are committed to supporting our clients every step of the way, putting them in control of how and when they adopt RMS(one).”
RMS(one) enables RMS’ clients and other modeling organizations to implement their own catastrophe models so that they can be operated seamlessly alongside the RMS models. This ability to run multiple models in a single platform will provide insurers, reinsurers and catastrophe bond or ILS specialists with improvements in operational efficiency, enabling them to access and use models from a broader range of providers than has ever been feasible.
Joining the RMS ecosystem is Applied Research Associates, Inc. (ARA), which intends to make its U.S. hurricane catastrophe model available on RMS(one). ARA’s state-of-the-art hurricane catastrophe model, HurLoss, is one of only four commercially available models certified by the Florida Commission on Hurricane Loss Projection Methodology. The ARA hurricane model has been used in multiple pioneering studies on wind-loss mitigation for the past 15 years.
“Partnering with RMS to deliver our hurricane model on RMS(one) will provide significant, operational benefits for our clients,” said ARA executive vice president, Dr. Lawrence Twisdale. “We are very excited by the opportunity to give our clients a new option for accessing the ARA model while we continue to deliver our model as either an ARA-hosted or client-hosted product.”
ARA joins third-party model providers Risk Frontiers, ERN and JBA Risk Management, who collectively are implementing catastrophe models for 40 peril/country combinations on RMS(one). This growing ecosystem of non-RMS models on RMS(one) provides clients with new modeling capabilities not currently available from RMS, as well as alternative views of risk in areas already covered by RMS models.
“We’re very excited to see our Australia tropical cyclone model operational in the next RMS(one) beta release,” said Dr. Foster Langbein, chief technology officer at Risk Frontiers. “We’ve been really pleased with the smoothness of the implementation process and the relative ease of preparing our models for the platform. We look forward to offering our full suite of models on RMS(one).”
“By empowering our clients to define their own models, use our models and access the models of growing ecosystem of partners, RMS(one) serves as the one true exposure and risk management platform. Existing solutions cannot do this,” said Shah.