Updated RMS 2017 Hurricane Forecast Model Could Intensify Rate Pressure
In April, Risk Management Solutions, Inc. (RMS), a market leader in catastrophe risk modeling, released an update to their 2017 North American Hurricane Model. This is noteworthy because it is the first time that medium-term forecasting rates have fallen below the long-term rates as it pertains to hurricane landfall in the U.S.
How does this affect you? This update is taking place prior to major reinsurance contract renewals that occur on 6/1 and 7/1. Key reinsurance players, primary markets, and alternative capital/ILS funds that have adopted this change, will have modeled their portfolios with the updates and it could intensify the rate pressure currently experienced in the South East/Gulf through the summer months and into the close of 2017.
Data from scientific research on thirteen key weather models, with an intense focus on sea surface temperature, suggests that as the Atlantic Basin sea surface warms and that water migrates east toward Africa, major storms will develop farther away from the U.S. Coast and maintain off shore tracks. As those storms intensify offshore, they’ll presumably track toward the North East and lead to more “Sandy” type events.
RMS has calibrated their models to align with the aforementioned science which has resulted in an assumption for less risk in Florida and the Gulf and ultimately a 16% decrease in the US average annual loss relative to the previous medium-term rate.
While models are predictive tools, they do make markets. Capacity providers are dependent upon them to price their reinsurance and to quantify the exposure within their portfolio. Presumably, the updates to the North American Hurricane Model will have some affect on pricing in the balance of 2017 and into 2018.
The All Risks property practice closely monitors the market and actively partners with our capacity providers to ensure our products are cutting-edge so that we may provide our retailer partners with solutions they can deliver with confidence.