Modeler RMS Reaffirms Hurricane Loss Projections Through 2011

November 22, 2006

Hurricane loss modeler Risk Management Solutions (RMS) has reaffirmed its medium-term five-year view of landfalling hurricane risk for the period of 2007-2011. The company is projecting higher modeled annualized insurance losses by 40 percent on average across the Gulf Coast, Florida, and the Southeast, and by 25-30 percent in the Mid-Atlantic and Northeast coastal regions relative to those derived using long-term 1900-2006 historical average hurricane frequencies.

RMS first released this view of risk before the 2006 hurricane season, for the five-year period of 2006-2010.

“As part of our annual review of medium-term landfall frequency in the Atlantic, RMS held its second expert elicitation in October 2006, presenting a range of statistical models to a panel of seven of the world’s leading hurricane scientists,” said Joshua Darr, director of model management at RMS. “This expert panel concluded that the forthcoming five-year period of hurricane landfall frequency would be very similar to our original five-year projection established last year.”

According to RMS, a key driver of the current elevated view of landfalling hurricane risk is an increase of more than 30 percent in the modeled frequency of major (Saffir-Simpson Category 3-5) hurricanes making landfall in the U.S., to account for current elevated levels of hurricane activity in the Atlantic basin that are expected to persist for at least the next five years. The increased frequency and intensity of hurricane activity in the Atlantic Ocean Basin, as observed since 1995, are driven by higher sea surface temperatures in the tropical North Atlantic and by associated changes in atmospheric circulation.

Darr added that the experts also reaffirmed that the “increase in activity of the most severe Category 3-5 hurricanes will be higher than the increase in Category 1-2 storms, based on the high likelihood of warmer than normal sea surface temperatures in the tropical Atlantic.”

This outlook was implemented into the RMS U.S. and Caribbean Hurricane models as part of the May 2006 release of the RiskLink and RiskBrowser 6.0 catastrophe modeling platforms. While the forward-looking view of hurricane risk will not need to be changed in the spring 2007 release of RiskLink and RiskBrowser 7.0, there will be additional incremental updates for residual demand surge effects, continued advancements to storm surge modeling, and additional vulnerability classes, according to the company.

Source: Risk Management Solutions, Inc.

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