Risk Management Solutions Updates Hurricane Model

May 22, 2006

Risk Management Solutions Inc. (RMS), Newark, Calif., launched the latest version of the RMS U.S. Hurricane Model, its first catastrophe risk model to explicitly incorporate a five-year forward-looking view of hurricane frequency. The new model is said to reflect extensive claims research and analysis of building performance, as well as an expanded methodology to assess amplified losses that can occur in severe catastrophes such as Hurricane Katrina.

RMS launched its new model with version 6.0 of its RiskLink and RiskBrowser risk management platforms, which include updates to the U.S. and Caribbean Hurricane models, Eastern U.S. and Eastern Canada Earthquake models, and a Europe Windstorm model. The new models were introduced on May 9-12 at the 2006 RMS Client Conference in Colorado Springs, Colo.

The updated RMS U.S. Hurricane model provides a new view of hurricane frequency in the Atlantic Basin that represents risk based on a ‘medium-term’ (five-year) forward-looking view. RMS believes that hurricane risk over the next five years is best represented by landfalling hurricane activity rates that are higher than the long-term historical average. Higher hurricane activity in the Atlantic is strongly linked to increased sea surface temperatures, and is likely to persist for at least the next five years, RMS velieves based on its research on climate variability, climate change, historical hurricane activity patterns, and hurricane clustering research. RMS assembled a panel of hurricane climatologists in October 2005 to confirm this new view of risk, and plans to repeat the process annually to review and assess the latest conditions and state of hurricane activity research.

After the 2004 and 2005 hurricane seasons, RMS embarked on a research initiative to collect and analyze claims and exposure data. From the compilation of high-resolution hurricane claims, RMS extracted information for its risk modeling.

The RMS U.S. Hurricane model combines modeling techniques with in-house research on storm behavior and building, contents, and time element vulnerability to simulate the potential range of damage an insurer can expect to experience due to a hurricane event. Wind and storm surge losses are calculated using enhanced vulnerability assessment facilitated in large part by the collection of $13 billion in insurance claims data from the 2004 and 2005 hurricane seasons, as well as new analytical assessments of building performance.

The hurricanes of 2004 and 2005 have also provided new insights into the amplification of insured losses in severe catastrophes due to economic causes beyond wind and water damage, explained Dr. Robert Muir-Wood, chief research officer at RMS: “Hurricane Katrina has prompted further research and understanding on how one high-impact event can create a cascade of far more damaging consequences. A whole new tier of economic, behavioral, and systems-based modeling is required to predict the losses in such Super Catastrophes.”

The new U.S. Hurricane model assesses factors such as economic demand surge, claims adjustment and inflation, the economic impact of reconstruction, and cascading catastrophes that can occur in major metropolitan areas. For more information, visit www.rms.com.

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