Bermuda Firms ‘Beginning To Embrace’ Model
Bermuda re/insurers are beginning “to embrace the results” of the controversial new hurricane model from Risk Management Services after getting over the initial shock of higher collateral reserves they may have to accept, a spokesman for the California company has told a leading industry news source.
Senior RMS vice president Ryan Ogaard told “Property Catastrophe 360″ yesterday [May 20] Bermuda firms are “beginning to accept the new catastrophe model” – despite the fact that it will result in substantial increase in probable maximum loss estimates.
“There was a lot of heat from the initial reaction to the new model, RMS version 11,” Mr. Ogaard said. “We did surprise the market with the size of the change.”
His comments came in light of an analyst’s note this week reviewing the Bermuda property and casualty catastrophe market.
Joshua Shanker, an analyst for Deutsche Bank, said there is a high backlash to the new RMS model among Bermuda reinsurers because of the increased capital costs, and they are rejecting “one or multiple conclusions that the model makes.”
Mr. Shanker said Bermuda reinsurers he spoke with have a “visceral contempt” for RMS version 11.
In his note the analyst discussed the “RMS v11 backlash” he encountered from seven out of the eight Bermuda re/insurers he met with while visiting the island recently.
He went on to say that some Bermuda firms would instead embrace competing catastrophe modeller AIR’s software which “could cause RMS to rethink some of its assumptions.”
The RMS model has long been the Bermuda industry standard.
Shortly before its launch earlier this year, the new RMS hurricane model was the subject of a lengthy critique by Boston-based catastrophe risk consultants Karen Clark & Co. RMS rejected those arguments, claiming Karen Clark reached erroneous conclusions about the upgraded model’s accuracy.
Last year scientists who helped to develop the RMS model publicly distanced themselves from the software, with one saying “a monkey” could make more accurate predictions concerning hurricane risk.
Mr. Ogaard disputed Mr. Shanker’s assessment, saying that instead of rejecting the model, Bermuda re/insurers are accepting it, after very close scrutiny.
A month ago, he said, there was some significant pushback from the Bermuda industry “but they are beginning to understand the nuances of the model.”
They should all be renamed Risk Gamblers^^