Tool is ready to support the 2008 Atlantic basin hurricane season
Risk Management Solutions (RMS) today announced the launch of Paradex US Hurricane, the first parametric index for assessing insured industry losses from US hurricanes. By combining actual wind speeds at multiple locations with proprietary industry exposure data, Paradex US Hurricane provides timely, objective, and reliable insured loss estimates that can be used by the insurance industry and capital markets to structure catastrophe bonds, industry loss warranties, and derivative contracts.
“Historically, the main difficulty in transferring catastrophe risk to the capital markets has been meeting investors’ need for standardisation, objectivity, and transparency while simultaneously providing issuers with indices tailored to their specific risks,” stated Peter Nakada, managing director of RMS Consulting. “Paradex US Hurricane is unique in that it is transparent enough to please investors, flexible enough to minimise basis risk for issuers, and efficient enough to satisfy both parties’ desire for a rapid settlement.”
Paradex US Hurricane offers industry loss estimates by region and line of business in nine identified hurricane-prone zones throughout Florida, the East Coast, and the Gulf Coast. In the event of a hurricane, wind speeds are obtained from a network of hurricane-hardened weather stations constructed by WeatherFlow, a leading provider of weather data. This data is then referenced against RMS insurance industry exposure and vulnerability curves to calculate final index values.
In contrast to loss indices that poll insurers and reinsurers and take many months to settle while initial estimates are updated, the Paradex US Hurricane index settles no later than 40 business days following the event.
"Objectivity and transparency are critically important, and are what this index seems to offer investors. The risk is driven solely by wind speed and this reduces the complexity of evaluating the attractiveness of investment opportunities based on it," stated John Brynjolfsson, portfolio manager and managing director of PIMCO, a global asset management firm. "I would suggest that Paradex is an innovation with global implications for the evolution of the insurance-linked securities market."