USA. Atlantic Basin hurricane activity to increase according to Risk Management Solutions

Thursday, 23 November 2006

Risk Management Solutions (RMS) has reaffirmed its medium-term five-year view of landfalling hurricane risk for the period of 2007-2011. The company is projecting higher modeled annualized insurance losses by 40% on average across the Gulf Coast, Florida, and the Southeast, and by 25-30% in the Mid-Atlantic and Northeast coastal regions relative to those derived using long-term 1900-2006 historical average hurricane frequencies. RMS first released this view of risk before the 2006 hurricane season, for the five-year period of 2006-2010.

"As part of our annual review of medium-term landfall frequency in the Atlantic, RMS held its second expert elicitation in October 2006, presenting a range of statistical models to a panel of seven of the world's leading hurricane scientists," said Joshua Darr, director of model management at RMS. "This expert panel concluded that the forthcoming five-year period of hurricane landfall frequency would be very similar to our original five-year projection established last year."

A key driver of the current elevated view of landfalling hurricane risk is an increase of more than 30% in the modeled frequency of major (Saffir-Simpson Category 3-5) hurricanes making landfall in the U.S., to account for current elevated levels of hurricane activity in the Atlantic basin that are expected to persist for at least the next five years. The increased frequency and intensity of hurricane activity in the Atlantic Ocean Basin, as observed since 1995, are driven by higher sea surface temperatures in the tropical North Atlantic and by associated changes in atmospheric circulation.

Mr. Darr added that the experts also reaffirmed that the "increase in activity of the most severe Category 3-5 hurricanes will be higher than the increase in Category 1-2 storms, based on the high likelihood of warmer than normal sea surface temperatures in the tropical Atlantic."

This outlook was implemented into the RMS(R) U.S. and Caribbean Hurricane models as part of the May 2006 release of the RiskLink(R) and RiskBrowser(R) 6.0 catastrophe modeling platforms. While the forward-looking view of hurricane risk will not need to be changed in the spring 2007 release of RiskLink(R) and RiskBrowser(R) 7.0, there will be additional incremental updates for residual demand surge effects, continued advancements to storm surge modeling, and additional vulnerability classes.

RMS will continue to monitor, publish, and apply the five-year forward- looking view of activity rates, in conjunction with convening an expert elicitation of leading hurricane climatologists on an annual basis.

About RMS

Risk Management Solutions, Inc is the world's largest leading provider of products and services for catastrophe, weather, and enterprise risk management. More than 400 leading insurers, reinsurers, trading companies, and other financial institutions rely on RMS models to quantify, manage, and transfer risk. Founded at Stanford University in 1988, RMS serves clients today from offices in the U.S., Europe, Japan, and Bermuda.

Last Updated ( Thursday, 23 November 2006 )