Advanced RMS Simulation Platform allows Re/insurers to Model "Clustering" of Weather Events
 

Newark, Calif – September 4, 2008 – Risk Management Solutions (RMS) today unveiled a major upgrade to its Simulation Platform, enabling re/insurers to make more informed risk management decisions based on advanced science and modeling of natural catastrophes. A major new feature of the platform is that it provides ground-breaking scientific analysis of event "clustering," whereby a sequence of meteorological events occurs within a close period of time and space.

The scientific community has long recognized that certain natural hazards tend to cluster, with a single catastrophe increasing the likelihood of additional events occurring within a brief timeframe.  “Looking back over the past five years, for example, there were more than four U.S. landfalling hurricanes in 2004 and 2005, followed by none in 2006 and 2007,” commented Anu Sandhu, senior product manager of the RMS® Simulation Platform. “Rather than just looking at average event frequency over a certain period of time, the Simulation Platform allows clients to assess the probability of, say, having another year like 2004 or 2005. Essentially it provides additional insight into how events vary year on year.”

She added: “It is too early to say for certain, but with the current activity in the Atlantic Basin, we could see an example of hurricane clustering this season.”

The upgraded Simulation Platform includes major advances in simulation methodology, resulting in a realistic, physical representation of event clustering. “This is a first for catastrophe modeling,” said Ms. Sandhu.  “Until now, modelers have relied on a purely statistical method for assessing the frequency of catastrophic events, which doesn’t represent the physical reality. Our new approach represents a new paradigm for assessing risk and takes account of the fact that events are not necessarily random and independent of each other.”

Clients have the ability to access the new scientific research as part of a stand-alone application, or embed the data and analytics into their internal systems. In the first phase of implementation, the platform captures the clustering of U.S. hurricanes, Europe windstorms, and U.K. floods.

Event clustering impacts decision-making around multi-event risk, treaty pricing, and regional accumulations of risk, as well as capital allocation and solvency.  “Including clustered event scenarios in the Simulation Platform enables insurers and reinsurers to fully quantify loss variability and their exposure to multiple events within a season.  This in turn results in numerous opportunities, like helping to create a market for multi-event covers by allowing insurers and reinsurers to agree on pricing for contracts that would otherwise never have been written – purely because the price could not be settled upon.”

A further enhancement to the upgraded platform is that it includes an ‘advanced seasonality’ feature, allowing the industry to more accurately model seasonal patterns of event frequency and severity.  For example, it takes into account that the most intense hurricanes tend to form in August and September.

The RMS Simulation Platform is available alongside a set of new and updated RMS catastrophe models and software with version 8.0 of the RiskLink® and RiskBrowser® modeling platforms that are used throughout the insurance and reinsurance industry.