For our latest Artemis Live interview we were joined by Jeff Waters and Ben Brookes from catastrophe risk modeller RMS, to discuss the latest update to the RMS North Atlantic hurricane model and how the insurance-linked securities (ILS) market should think about this evolution in modelling hurricane risk.
RMS has recently launched an updated version of its North Atlantic hurricane risk model, with Version 21 containing some changes that are important for reinsurance and insurance-linked securities (ILS) market participants to understand, not least for the investor side of ILS and catastrophe bonds.
Jeff Waters, Meteorologist and Senior Product Manager at RMS and Ben Brookes, VP, Consulting Services at RMS joined us for the discussion.
With the 2021 Atlantic hurricane season now upon us, their explanation of the updates to the hurricane model and how ILS fund managers and investors should think about this, is valuable preparation for the storm season ahead.
Waters explained why the updates are important, “With Version 21 of our Atlantic hurricane models, we really continued to evolve the science of hurricane risk modeling.
“Over the years we’ve introduced various enhancement, such as multiple views of event frequencies, a very comprehensive storm surge modelling framework. All those key components remain, we’ve just enhanced them with the latest scientific understanding of the hurricane risk landscape.
“A lot of that in Version 21 is informed by new data and learnings from recent impactful seasons, including $6 billion in new claims data.”
Brookes discussed at a high-level how capital market investors and those in the ILS market, such as fund managers and collateralized reinsurance players, should think about the updated model.
“In Version 21, our reference view of risk generally yields fairly small changes for ILS, versus the prior version. We’ve made some tweaks to the sets of hurricane rates that we have based on the data from the last couple of seasons, and those changes are relatively small overall,” Brookes said.
Continuing to explain, “We’re also updating our industry exposure database as part of Version 21. The changes for that again are relatively small to bring the exposure in line with the latest growth trends. So the changes in the baseline views, if you like, are relatively muted.
“I think what’s more interesting is the impact and how we’re able to inform understanding of key uncertainties. I expect fund managers might want to think about how they’re pricing risk if the roof replacement rules are strictly followed, because those can have a fairly meaningful impact on loss.”
Brookes also explained how RMS’s new climate change models can be used alongside the hurricane models to enhance views of risk.
“We understand that climate change is a pretty major topic in the ILS space, especially when it comes to helping investors to understand how robust is the pricing on these deals and how might expectations for this asset class shift over time.
So we think those climate change models will be valuable to inform the debate and to help set strategy as well.”
Brookes believes the changes introduced by the new hurricane model version will ultimately support investors in ILS as they gain a better understanding of risk, either directly or through the ILS fund managers they work with.
“We anticipate that Version 21 will continue to solidify investor confidence in the models that underpin ILS pricing,” Brookes stated.
Watch the whole video to gain important insights into how RMS’ next generation model version will enable ILS market players to enhance their view of hurricane risk through the 2021 Atlantic season.
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