Industry Adopting Enhanced RMS Risk Models for U.S. Catastrophe Risk

September 26, 2003

Risk Management Solutions (RMS), a provider of products and services for the management of catastrophe risk, announced that its new third generation earthquake and hurricane models for the United States are being adopted by the global insurance and reinsurance industry.

RMS released the new U.S. models in February 2003 with its RiskLink┬« 4.3 and RiskBrowser┬« 3.2 software platforms. There have been approximately 300 installations of the new models since release, supporting over 2,500 users. Over 75% of RMS’ client base, including insurers, intermediaries, and reinsurers, are now adopting the new models for use in supporting key business decisions.

The new RMS models reportedly improve the quality and resolution of catastrophe loss estimates, and reflect more than three years of development by a large team of RMS modelers. “The landmark U.S. catastrophes of the early 1990’s – Hurricane Andrew in 1992 and the Northridge Earthquake in 1994 – stimulated a decade of scientific research and innovation, starting with improved data collection, and leading to a new theoretical understanding of the catastrophes themselves,” said Dr. Robert Muir-Wood, chief research officer at RMS. “Much of the fruits of this research has only been published over the past couple of years – in some areas these findings have transformed the basis of catastrophe modeling.”

For earthquake risk in the western U.S. RMS has utilized the latest time-dependent and cascade fault source hazard models from the U.S. Geological Survey (USGS) 2002 National Seismic Hazard Maps, as well as state-of-the-art spectral response techniques for calculating building-specific damage due to earthquake shaking, and the associated uncertainty.

The updated U.S. hurricane model has not only taken advantage of significant advances in hurricane observational data and the very latest meteorological research, but also reflects RMS’ major investment in enhancing every aspect of modeling hurricanes from the behavior of windfields over coastal areas to new research into the phenomenon of extra-tropical transition, which is particularly important for understanding how storms impact the northeastern U.S.
These advances and their impact on modeled loss estimates are reportedly causing companies to review their risk management plans.

Over the past two years RMS has focused on working closely with its clients to make the transition to new model results as smooth as possible.

“While the majority of our clients are now comfortable with the new models, we realize that this adoption process will continue for the next year or so,” said Hemant Shah, president and CEO of RMS. “We take very seriously our responsibility to assist clients with all aspects of this change, from installing the models and re-analyzing their portfolios, to ensuring that they understand the nuances of our methodologies, the rationale for the technical improvements, and the implications of this new risk landscape on their business.” Shah added, “These models are designed to provide the infrastructure necessary for risk assessment for the balance of this decade, but we remain committed to making enhancements if significant new research and data become available.”

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