RMS Unveils New Models for Evaluating Earthquake Risk in North America

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Newark, Calif – August 6, 2009 – Risk Management Solutions (RMS) has unveiled its next-generation models for North America earthquake risks, covering the U.S. and Alaska, Canada, and Mexico, delivering them to several hundred insurers and reinsurers globally on Monday. The new models are likely to lead to a reduction in U.S. earthquake insured loss estimates of 10 to 25 percent for the average insurer across all lines of business, with more modest changes in loss estimates for commercial business lines and larger reductions for residential lines.

As well as drawing on the latest scientific research, the new models incorporate major advancements to help companies differentiate the risk between individual properties more precisely and gain greater insight into the factors affecting uncertainty in model results. The latest RMS release also includes a suite of new and upgraded earthquake models for Central and South America to provide an integrated and seamless basis for managing earthquake risk across the entire Americas region.

The most significant changes in North America will be in California, where modeled loss estimates will reduce by approximately 5 to 15 percent for most commercial portfolios and 25 to 35 percent for the majority of residential portfolios. Results will vary by company based on the geographic distribution of their portfolios as well as the building characteristics of the insured properties and policy conditions. “Our new model reveals that the landscape of earthquake risk is changing in California,” commented Paul VanderMarck, chief products officer at RMS. “With modeled loss estimates decreasing more in the San Francisco peninsula than in Los Angeles, where earthquake risk was previously estimated to be lower, the relative risk in the two cities is now much more similar. Given the amount of property exposure in Los Angeles, insurers could now see it accounting for as much as 60 percent of their overall California risk.”

While overall modeled loss estimates are expected to decrease moderately across most of the U.S. and Eastern Canada, losses in some areas of the Pacific Northwest, Southeast, and Western Canada will increase.

Major Scientific Developments and Model Advancements

The principal driver of changes in modeled loss estimates for the Western U.S. and Canada is a new body of science on how ground shaking decreases with distance from an earthquake�s fault rupture, known as ground motion attenuation. This latest research, which has been incorporated by the U.S. Geological Survey (USGS) in their 2008 National Seismic Hazard Maps, reveals that previous approaches to assessing ground motions were generally too conservative, particularly for extreme event scenarios. As an integral part of incorporating the latest scientific developments, RMS has thoroughly reviewed all aspects of the models to ensure they remain calibrated with historical loss experience.

The new models also incorporate ground-breaking new research into the modeling of expected property damage and human casualties due to earthquakes. These advances enable companies to differentiate their portfolio risks in more detail. For example, they can now more precisely characterize the potential damage and collapse probability of individual buildings based on their height, construction type, age, soil conditions, and other more detailed information.

Perhaps most importantly, RMS has focused on providing greater insight and transparency around the uncertainty in the model. “While science develops and models become increasingly sophisticated, estimating losses from catastrophic events remains an inherently uncertain endeavor,” commented Mr. VanderMarck. “With this model release we�ve taken major steps to characterize the uncertainty more explicitly. For the first time in a catastrophe model, we have implemented functionality to enable companies to quantify how uncertainty in key areas of the underlying science propagates through into uncertainty in modeled loss estimates.”

The U.S., Canada, and Mexico earthquake models are being released in the RMS RiskLink® and RiskBrowser® 9.0 risk modeling platforms.

About RMS

Risk Management Solutions is the world��s leading provider of products and services for catastrophe risk management. More than 400 leading insurers, reinsurers, trading companies, and other financial institutions rely on RMS models to quantify, manage, and transfer risk. Founded at Stanford University in 1988, RMS serves clients today from offices in the U.S., Bermuda, the U.K., France, Switzerland, India, China, and Japan. For more information, visit our website at www.rms.com.