RMS stands behind updated U.S. Atlantic Hurricane Model

RMS has issued a statement standing behind the science it employed in creating Version 11.0 of its U.S. Atlantic Hurricane Model.The new U.S. model, which has received criticism for increasing probable maximum loss (PML) estimates, “reflects real improvements in underlying calibration data and modeling methodologies,” RMS said in its statement. “It is not about volatility in results, but rather a real enhancement in knowledge.”For example, the model takes into account research on building codes in various areas, as well as the effect on wind speed on the roofs of buildings. RMS says it “gains no advantage in over- or under-stating the risk and will not consider selectively withholding modeling advances to dilute or phase changes in results.” It acknowledged a model change “can bring significant challenges,” but “we believe companies should have access to all new and relevant information known to and reviewed by us so they can adjust underwriting decisions and capital requirements appropriately.”The alternative, RMS says, “would lead to compromised decisions and surprises when catastrophes strike, and has associated liability implications.”The statement comes a few days after risk management firm Karen Clark & Company said it was conducting briefings with U.S. insurance company executives concerned about the model. Karen Clark said executives expressed concern in the briefings about how much their Probable Maximum Loss (PML) estimates have increased as a result of the model update – sometimes by more than 100%. [RMS says PMLs in its testing were 30% to 100% higher, depending on the circumstances.]