‘Everyone will have to carry more capital’ because of RMS model change

PROPERTY catastrophe rating increases will continue to gain momentum throughout the year with Version 11 of RMS’ US hurricane model increasingly becoming the driving force behind the change, with the market being warned: “Everyone will have to carry more capital”.

The warning came from Jonny Creagh-Coen, Lancashire’s head of investor relations, who was speaking to Insurance Day after his company became one of the few major reinsurance players to avoid slipping into a loss during the first quarter of 2011.

The warning on the impact of the RMS model reiterates one of the messages which has been emerging from market conversations in recent weeks - that this model change is having a more severe impact on the rating environment than the record-breaking international losses experienced during the first quarter.

Creagh-Coen said rating changes as a result of the RMS model revision will “gain momentum into the July 1 renewals and onto the end of the year as perceptions change and some of the bigger companies get to the bottom of how big a change it is”.

He said the impact of losses in Japan is also being recognised within that market, with wind rates already up 10% and earthquake 50%.

Lancashire’s internal renewal price index flagged offshore energy as the strongest sector in terms of rate increases during the first sector, with a 4% rise.

“Energy has seen two very significant losses, with the Gryphon [Floating Production Storage and Offloading North Sea Platform] loss and the Canadian oil sands loss. If you take out the liability aspect, Gryphon is a bigger loss than Deepwater Horizon, while the Oil Sands loss is being spoken of as a loss of up to $1bn. These are big losses.”

Creagh-Coen said there had also been an uptick in terrorism rates in some regions, particularly in North Africa following recent unrest.