Newark, Calif. - Increases to hurricane landfall frequencies in the U.S. hurricane model from Risk Management Solutions (RMS) will increase modeled annualized insurance losses by 40% on average across the Gulf Coast, Florida and the Southeast, according to RMS. And modeled annualized insurance losses in the Mid-Atlantic and Northeast coastal regions will increase by 25% to 30%, relative to those derived using long-term 1900-2005 historical average hurricane frequencies.This new view of risk is driven by 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, which are expected to persist for at least the next five years. When compared with a pre-2004 historical baseline, as has been previously employed for quantifying insurance risk, the increases in modeled annualized losses are closer to 50% in the Gulf, Florida, and the Southeast.

The increased frequency and intensity of hurricane activity in the Atlantic Ocean Basin, as observed since 1995, is driven by higher sea surface temperatures in the tropical North Atlantic and by associated changes in atmospheric circulation. These warmer temperatures are expected to translate into a continuation of high activity in the basin, leading to a greater potential for hurricanes to make landfall at higher intensities over the next five years.

To address this period of elevated frequency and intensity of storms, RMS consulted with representatives from all segments of the insurance industry and updated its U.S. and Caribbean hurricane models to provide a 'medium-term' (five-year) forward-looking view of risk for estimating potential catastrophe losses. To date, catastrophe model results have been based on a long-term historical average baseline.

Based on the five-year perspective of its expert panel, RMS developed a methodology to update activity rates in its proprietary models based on storm intensity, storm track, and landfall region. This methodology indicates that increases in hurricane frequencies should be expected across the entire U.S. coast, but will be highest in the Gulf, Florida, and the Southeast, while lower in the Mid-Atlantic and Northeast.

"Considerable scientific debate on the reasons for the high state of current hurricane activity continues among leading climatologists, between those who view natural, multi-decadal variability as the principal cause and those who also see a significant influence of global warming," says Dr. Robert Muir-Wood, chief research officer at RMS. "While the experts convened by RMS hold different climatological perspectives on the underlying causes of elevated hurricane activity, they agreed unanimously that a forward-looking view of risk should reflect a higher probability of land-falling hurricanes than is represented by long-term historical averages."

This new outlook regarding heightened hurricane intensity and landfall frequency will be incorporated in the updated RMS U.S. and Caribbean Hurricane Models, part of the May 2006 release of the RiskLink and RiskBrowser 6.0 catastrophe modeling platforms. The models will also contain changes in the modeling of vulnerabilities and post-event loss amplification effects based on detailed RMS analysis of claims data from the 2004 and 2005 hurricane seasons. RMS will continue to monitor, publish, and apply the five-year forward-looking view of activity rates, in conjunction with convening an annual expert elicitation of leading hurricane climatologists.

"Coming off back-to-back, extraordinarily active hurricane seasons, the market is looking for leadership. At RMS, we are taking a clear, unambiguous position that our clients should manage their risks in a manner consistent with elevated levels of hurricane activity and severity," says Hemant Shah, president and CEO of RMS. "We live in a dynamic world, and there is now a critical mass of data and science that point to this being the prudent course of action."

Source: Risk Management Solutions

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