National Underwriter - October 17, 2011

New RMS Model Raising Questions
Among Insureds, Producers

BY PHIL GUSMAN & CHAD HEMENWAY

Risk MaNaGeMeNt solutions’ revised catastrophe model, which is frequently cited as a reason for recent rate increases for some prop- erty risks, was a hot topic at the National association of Professional surplus lines Offices convention, held in san Diego Oct. 10-12.

so we decided to ask some attendees: how are brokers and insureds handling the news that premiums are going up, in part due to a model revision?

“Not well at all,” said Judy Patterson,
a property underwriter at specialty-insur-
er Beazley.
she added, “in some areas, florida for
example, insureds and [producers] have
a little bit of model fatigue. they’ve been
through a number of model changes.”
Patterson noted, however, that the new
model is having a significant impact in
texas and along the Gulf Coast, where in-
sureds and producers have not historically
paid as much attention to the models as
have those in florida. “that is where it’s
really having an impact right now, because
it’s kind of new to them.”
Patterson revealed that she recently came
from a meeting with a texas broker who told
her, “i don’t want to talk about [the new
model] again!” her reaction? “i felt sorry, but
that’s the reality of where we are right now.”
the model, rMs Version 11.0, makes
adjustments to the impact of wind during a
hurricane, putting more risk inland.
Patterson believes Beazley has a good
understanding of the changes in the model,
and she says the changes agree with Beaz-
ley’s experiences from hurricane ike. “Our
personal experience during that cat echoes
some of the changes rMs is making as far
as extending the wind fields farther inland.”
Version 11.0. i know there are some carri-
ers using blended models, or trying to, in
some ways, temper the impact.

One Giant Risk: Supertankers Could Present New Surplus Opportunity

BY CHAD HEMENWAY

AlarGe Vesselcarrying whatlooked to be hundreds of cargo contain- ers was docked in the san Diego Bay during the first day of the National association of Professional surplus lines Offices convention.

in a conversation at the convention, Donald harrell, senior vice president of marine for liberty international Underwriters, said a new line of “supertankers,” set for launch next year, could be the next opportunity in the marine-specialty market.

On these new vessels could potentially be billions of dollars in risk—from the cargo being shipped to the value of the vessel.

“You have to wonder if there is enough capacity in the market to handle the risk,” said harrell—a big statement to make during a time of such excess capacity.

But with these supertankers, “there is a huge potential for loss,” he noted, pointing out that they are hundreds of yards long and a hundred yards wide—with the capability of transporting more than 15,000 containers.

the surplus industry will be contemplating how to handle the total accumulation of losses in a worst-case scenario: think of the business interruption as well as the contract liability floating along the seas, along with the various goods.

“in terms of cargo, there could be thousands of policies on one ship,” harrell pointed out. “Maybe one company has 100 clients with 100 different limits.”

the new risk is likely a “much bigger reinsurance accumulation issue” in order to fill in the gaps at the top of the risk transfer, he said.

however, the new risks associated with these supertankers could breathe some new life into a segment of the specialty market that has been mired in a decade of stagnant growth.