RMS Launches Updated Earthquake Model for Eastern U.S. and Canada

New Model Includes Innovative Treatment of Earthquakes in the New Madrid Seismic Zone to Reflect Uncertainty in Fault Parameters and Event Occurrence

Newark, Calif. – June 7, 2006– Risk Management Solutions (RMS), the world’s leading provider of products and services for the management of natural hazard risk, has announced the launch of a major update to its U.S. and Canada Earthquake models. The latest versions represent a significant advancement in the quantification of seismic risk for the eastern U.S. and Canada, implementing third-generation modeling capabilities throughout the region and incorporating perspectives on loss amplification gained from the hurricanes of 2004-2005.

“Earthquakes east of the Rockies are less common than in the tectonically active West, but can be more severe due to the slower attenuation of ground motion and less seismically-resistant building stock,” said Don Windeler, earthquake practice lead at RMS. “Our revised U.S. and Canada Earthquake models provide users with powerful tools for both underwriting and portfolio management in these regions.”

RMS updated the source modeling for these rare events by utilizing the current national seismic hazard maps from the U.S. Geological Survey and the Geological Survey of Canada, as well as new research into the behavior of key areas driving the risk to insured portfolios. The treatment of the largest earthquakes in the New Madrid seismic zone, for example, includes stochastic events incorporating variability in geometry, ground motion, magnitude estimates, and single or multi-event occurrence.

Another key advancement involves the extension of RMS’ spectral response-based vulnerability modeling from the western earthquake regions to the eastern regions, providing a consistent analytical framework for risk quantification across the U.S. and Canada. This approach captures the variations in spectral frequency content with magnitude, distance, and site conditions, and analyzes the ways that they interact with buildings of different heights and materials. The ground motions from earthquakes in the eastern U.S. and eastern Canada have greater high-frequency content than events in the west, an important characteristic in capturing the risk profile for low-rise structures in this region.

These advancements to the earthquake modeling framework are further enhanced by the expanded data layers embedded in RMS’ RiskLink® and RiskBrowser® risk modeling platforms. Information on site conditions is provided using a proprietary geographic indexing system known as the Variable Resolution Grid (VRG) to store data at a resolution finer than postal code for all of the U.S. and Canada, with additional databases of basin depth in the Mississippi embayment, as well as liquefaction and landslide susceptibility. These data layers give underwriters an expanded tool set for differentiating risk between locations.

The hurricanes of 2004 and 2005 provided new insights into the amplification of insured losses in severe catastrophes due to economic causes beyond “simple” damage. A new loss-amplification module, consistent with the one currently being applied to other third-generation RMS models, has also been implemented throughout the U.S. and Canada to consider such factors as economic demand surge, claims adjustment and inflation, the economic impact of reconstruction, and cascading catastrophes that can occur in major metropolitan areas.

Using the new RMS® U.S. Earthquake Model and insured exposure as of 2006, RMS estimates that the states east of the Rockies comprise 20% of the average annual loss from earthquakes in the U.S. A majority of this 20% comes from the five states surrounding the New Madrid seismic zone (Missouri, Illinois, Tennessee, Kentucky, and Arkansas). RMS estimates that a magnitude 7.7 New Madrid earthquake, similar to the one that occurred in December of 1811, would result in over $60 billion in insured losses today.

The RMS® U.S. Earthquake and Canada Earthquake models were launched with version 6.0 of its RiskLink® and RiskBrowser® risk management platforms. Version 6.0 includes updates to the U.S. and Caribbean Hurricane models, U.S. and Canada Earthquake models, and the Europe Windstorm model. The new models were introduced on May 9-12 at the 2006 RMS Client Conference in Colorado Springs, Colorado. The largest gathering of catastrophe risk modeling professionals in the industry, the conference was attended by more than 500 insurance and reinsurance industry representatives.