Catastrophe model updates and near-present climate approaches
Reinsurance intermediary Howden Re has examined how recent updates to catastrophe models by providers such as Verisk and Moody’s RMS will influence how insurers and reinsurers assess exposures, manage portfolios and purchase reinsurance. Model developers are increasingly incorporating current and near-term climate conditions rather than relying solely on long-term historical averages. Verisk has implemented this near-present climate approach in its updated hurricane model, following earlier revisions to wildfire and severe convective storm models, while Moody’s RMS is expected to introduce a similar method in its upcoming HD hurricane model. These updates also incorporate environmental indicators such as the El Niño-Southern Oscillation and sea surface temperatures to allow users to test portfolio sensitivity under different weather conditions.
Interpreting modelled loss variations
Howden Re cautions that advanced modelling capabilities do not remove the need for additional scrutiny, noting that shifts in estimated losses can stem from revised methodologies rather than actual changes in underlying risk. Because model updates are not released simultaneously across all perils, insurers must work with a mix of differing views. The firm suggests that vendor models should be treated as part of the assessment process rather than a complete representation of exposure. To address limitations in concentrated portfolios, Howden Re recommends combining third-party software with independent analytical tools, such as its Blaze Index for wildfire risk and Portfolio Accumulation Tail Hazard capability, to better understand potential losses.