Of citical interest is the topical article that appeared on the Business Insurance.com website related to RMS (Risk Management Solutions Inc.'s) revised hurricane model which will be effecting rates on property package insurance premiums as the concern moves inward or inland vs. traditional coastal communities. In many cases the assessments can see an annual increase of rates ranging from 10 to 20% depending on the base rate for property. Hurricane Irene and Tropical Storm Lee redefined the impact area in the North East primarily NJ, NY, CT and PA.New RMS hurricane model changes outlook on rates
May 22, 2011 - 6:00am
BusinessInsurance.com
by Judy Greenwald
The latest version of Risk Management Solutions Inc.'s U.S. hurricane model is causing a stir in the insurance market, but it is still unclear how big an impact it will have on pricing.
Claire Souch, London-based vp of natural catastrophe and portfolio solutions for RMS, said the RMS Version 11 changes the grading of risk as hurricanes move inland.
While the risk of wind damage still diminishes, “it's now less steep than the previous (model), so the further you go inland, the greater the risk vs. the previous version,” she said.
“Companies are somewhat taking the middle ground” with respect to the RMS model, said Amit Kumar, vp of Macquarie Securities Group in New York. During their earnings calls, most companies “suggested RMS was one of the models they used,” but also said it “would not be the sole driver of examining their catastrophe exposure,” he said. “I don't know if it has had any tangible impact yet,” said Mark Dwelle, an insurance analyst at RBC Capital Markets, a unit of RBC Dominion Securities Inc. in Richmond, Va. “I think everyone is still testing it out and feeling their way around,” he said of the updated hurricane model that was released in February. “I don't think anybody's using it as a rate-setting or a policy tool at this point.” “You're still looking at a U.S. property market where they have done very well for the last five years,” which makes it hard for companies “to tell their customers they should pay more because of the model change” when “the actual, real risk hasn't changed at all,” said Cliff Gallant, an analyst at Keefe, Bruyette & Woods Inc. in New York.
“We really have kind of a mixed bag here,” said John DeMartini, Stamford, Conn.-based leader of Towers Watson & Co.'s catastrophe risk management and its U.S. property reinsurance specialty practices. RMS' updated model has “caused a lot of companies to question” whether to use the new version, an older version or blend RMS' model with others that are commercially available, he said.
“We have the RMS model,” but “we apply our own viewpoint on top of that.” said John H. Vasturia, president of the regional clients division for Munich Reinsurance America Inc. in Princeton, N.J. “In certain areas, we think the exposure is either more or less of what comes out of the model.”
Ms. Souch said some insurers use the RMS model exclusively, some use it in conjunction with other models, and some use a stress test or some other form of benchmark.
Ms. Souch said there has been a “progression of reactions” to the revised RMS model.
Initially, “we had some elements of the market seemingly surprised by the magnitude of the changes. They had concerns, for example, about the amount of premiums available to pay for the new view of risk, how it might affect ratings and some issues like that,” she said.
Then began requests for more information “about what had really gone into the new models, what were the drivers of change and the validation of the new model itself,” Ms. Souch said.
“We've literally had hundreds of meetings since the release,” she said. Now, acceptance of the model “is increasing literally week by week,” she said. “The vast majority of our client base have installed and are running (version) 11, and a large proportion of those are looking at the results and beginning to use them,” Ms. Souch said.
Claire Souch, London-based vp of natural catastrophe and portfolio solutions for RMS, said the RMS Version 11 changes the grading of risk as hurricanes move inland.
While the risk of wind damage still diminishes, “it's now less steep than the previous (model), so the further you go inland, the greater the risk vs. the previous version,” she said.
“Companies are somewhat taking the middle ground” with respect to the RMS model, said Amit Kumar, vp of Macquarie Securities Group in New York. During their earnings calls, most companies “suggested RMS was one of the models they used,” but also said it “would not be the sole driver of examining their catastrophe exposure,” he said. “I don't know if it has had any tangible impact yet,” said Mark Dwelle, an insurance analyst at RBC Capital Markets, a unit of RBC Dominion Securities Inc. in Richmond, Va. “I think everyone is still testing it out and feeling their way around,” he said of the updated hurricane model that was released in February. “I don't think anybody's using it as a rate-setting or a policy tool at this point.” “You're still looking at a U.S. property market where they have done very well for the last five years,” which makes it hard for companies “to tell their customers they should pay more because of the model change” when “the actual, real risk hasn't changed at all,” said Cliff Gallant, an analyst at Keefe, Bruyette & Woods Inc. in New York.
“We really have kind of a mixed bag here,” said John DeMartini, Stamford, Conn.-based leader of Towers Watson & Co.'s catastrophe risk management and its U.S. property reinsurance specialty practices. RMS' updated model has “caused a lot of companies to question” whether to use the new version, an older version or blend RMS' model with others that are commercially available, he said.
“We have the RMS model,” but “we apply our own viewpoint on top of that.” said John H. Vasturia, president of the regional clients division for Munich Reinsurance America Inc. in Princeton, N.J. “In certain areas, we think the exposure is either more or less of what comes out of the model.”
Ms. Souch said some insurers use the RMS model exclusively, some use it in conjunction with other models, and some use a stress test or some other form of benchmark.
Ms. Souch said there has been a “progression of reactions” to the revised RMS model.
Initially, “we had some elements of the market seemingly surprised by the magnitude of the changes. They had concerns, for example, about the amount of premiums available to pay for the new view of risk, how it might affect ratings and some issues like that,” she said.
Then began requests for more information “about what had really gone into the new models, what were the drivers of change and the validation of the new model itself,” Ms. Souch said.
“We've literally had hundreds of meetings since the release,” she said. Now, acceptance of the model “is increasing literally week by week,” she said. “The vast majority of our client base have installed and are running (version) 11, and a large proportion of those are looking at the results and beginning to use them,” Ms. Souch said.
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