Risk modeller RMS expects its new European windstorm model, announced today, to increase average annual loss estimates in most regions.
"As a result of the changes and a more comprehensive event set – particularly high-frequency, low-severity events – RMS expects to see increases in the average annual loss in most regions, more closely matching historical experience," the company said in a statement. "With the addition of small storms, which are not generally considered to be catastrophe events, the model now represents a more complete view of loss from the range of windstorms."
However, RMS added that the new model's impact on individual portfolios will differ considerably depending on region and line of business. The company said its tests on more than 100 portfolios show a wide range of change effects, both increasing and decreasing, across return periods.
RMS last updated its European windstorm model in 2006 and describes the new release, version 11.0, as a "comprehensive upgrade". Since the last update RMS says it has analysed over two million individual claims and integrated lessons from windstorms including Kyrill, Emma, Klaus and Xynthia.
The model now includes 135 historical storm reconstructions from the past 40 years, and employs a new windstorm clustering methodology, which allows users to assess the sensitivity of model results to multiple events in a given year. RMS says this methodology enhances companies’ understanding of tail risk and can better inform pricing for reinsurance treaties based on aggregate losses.
“The enhancements to our Europe windstorm model will ultimately empower companies to make more realistic capacity allocation and capital management decisions, as well as help to determine appropriate reinsurance structures and pricing,” said Ryan Ogaard, senior vice president of model solutions at RMS, in a statement.