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The US was struck by three major events in 2011 – tornadoes in the Midwest, Hurricane Irene and what some have called ‘Hurricane RMS’. The first two were largely predictable, if tragic events. Tornadoes in the Midwest prompted an uptick in pricing in cat-hit areas, while Hurricane Irene encouraged reinsurers and insurers to re-examine their North East exposures. Who would have thought that a hurricane could reach that far north on the eastern seaboard, some asked. However, it was ‘Hurricane RMS’ that appears to have really caught the industry unawares.
Whereas many understood the potential danger of a North East hurricane, few foresaw the effect that RMS model changes would have on their US wind portfolio. Discussions between the modelling firm and reinsurers and insurers prior to release, appear to have failed to outline the full extent of increases to exposures. Upon its release, RMS’s version 11 generated some worrying increases on US wind exposures. Few saw them coming. The changes prompted much discussion this year regarding the need for greater transparency and a move away from a reliance on data from a single modelling firm. Reinsurers and insurers expressed their concern that greater clarity had not accompanied the changes.
What does seem apparent is that RMS model changes prompted an uptick in US property cat pricing. Mid-year renewals saw rate rises of between 5 and 15 percent. Further rate increases appear on the cards for January 1, as the industry digests the full ramifications of RMS’s model change. Midwest events and Hurricane Irene may yet play a part. This is positive news in a global landscape largely devoid of upward rate movement. Hardening has been limited to those territories and lines directly affected by events. For US property cat, it would seem that RMS 11 was this year’s event.
US pricing will undoubtedly be watched with interest by Bermuda players. US business continues to dominate portfolios on the Island and any upward movement — regardless of the nature of its driver — will be positive news. Whether this is the start of a wider turn seems unlikely, but with US property cat pricing firming up, it might just prove good news after what has been a difficult year.
View the November 2011 Issue Here
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