RMS CEO SEES BIGGER CATASTROPHE LOSSES

Speaking at the World Insurance Forum in Bermuda, Hemant Shah, Risk Management Solutions CEO, warned that insurers should be preparing to increase their reserves for catastrophe losses, not only due to the unprecedented 2005 hurricane season, but also to prepare for a stormy future.

Coinciding with the Conference, RMS said it’s ready to release three new catastrophe models which will cover the Gulf of Mexico’s windstorm, offshore energy and Caribbean risks, “on the back of lessons learned from last year’s hurricane season.”

The aim of any cat model is to anticipate what the risks are. Shah would agree with Karen Clark, who heads RMS rival risk modeler AIR, that the industry is facing a problem known in the data processing business under the familiar term “garbage in, garbage out,” as he noted: “The model is only as good as the data it contains.” In November Clark stated: “Modeled loss estimates are only as accurate as the exposure data input into the catastrophe model.”

Katrina and her sisters brought the cat modelers, and those who relied on them, back to reality. Shah said there’d been a change in how models are viewed, while noting that they’d “never been the complete solution.”

In an allusion to the assumed practice of simply plugging data into a model and letting it do the work, he cautioned that it’s just “one of the tools which the underwriter has at their disposal to make their decisions.”