Modeling Revisions


The No. 1 story in the property and casualty insurance market 2011 was the release by Risk Management Solutions of version 11 of its catastrophe model for U.S. hurricane risk.


“I think going forward, for the U.S. market specifically, RMS 11.0 will have a much greater impact than the other worldwide global losses, and we’ll certainly see that in the rate environment in 2012.”


James Drinkwater, AmWINS


As more insurers adopt the model, it is having a tremendous impact on the market. The revised model is producing increased loss estimates for carriers and for clients, particularly for inland exposures in Texas, Florida and the Northeast. As a result, expect to see carriers change their rating structure, reinsurance buying habits and pricing. Some estimate that the new loss estimates could require $20 billion to $25 billion of additional capital on top of losses flowing out of companies from recent catastrophes.


One reason that insurers are using the RMS model to measure risk and capital adequacy around that risk is because of rating agencies, like A.M. Best, that include the RMS model’s results in stress tests. Carrier’s use of any particular model depends in large part on the demands and expectations of its rating agencies and reinsurers. Some companies and insureds may seek out other models, but putting different models together presents challenges.


Copyright © 2012 by A.M. Best Company, Inc. All rights reserved. No part of this report may be reproduced, stored in a retrieval system or transmitted in any form or by any means; electronic, mechanical, photocopying, recording or otherwise.


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