RMS launches app to model ‘cat-in-a-box’ deals

Risk Management Solutions, Inc. (RMS) announced on Thursday that it has released the “first ever” app to model ‘cat-in-a-box’ deals.

The cloud-based app extends the ability to independently assess and underwrite parametric contracts from a small group of cedant, brokers and underwriters to all (re)insurers or insurance-linked securities (ILS) funds, RMS said in a statement.

Cat-in-a-box deals – so called because they provide cover for a particular type of catastrophe in a given geographical “box” – have long been a solution for corporates looking for quick and effective protection, particularly for offshore energy platforms. Until now, a simple, consistent and transparent methodology to model these transactions has been unavailable to the ILS community, RMS said.

“The new RMS cat-in-a-box app makes modelling parametric risk dramatically more straightforward, opening up the opportunity for many more companies to transfer risk on this basis,” said Stephen Moss, director of capital markets at RMS, in the statement. “Not only can users easily define the geographic areas in question, calculating the likelihood of different sized catastrophes is made simple, including the key peril-regions such as hurricane risk in the Gulf of Mexico and North America earthquake.”

With parametric deals, the terms of the contract are triggered by the location and parameters of the catastrophe – for example maximum wind speed or the storm category – rather than losses incurred by it, RMS explained. This means a quick decision can be made on whether a contract is triggered, resulting in a quick payment when it’s most needed, and no need to endure a lengthy claims process.

“With the numerous benefits provided by parametric structures combined with the ability to now better assess the risk using the new RMS cat-in-a box app, we fully expect the supply of parametric deals to increase as we approach the start of the 2016 hurricane season,” Moss said.

The app, which operates on the RMS Miu Insights web platform, uses a simple graphical user interface. Users can adjust the geographic area and change hazard parameters to produce instant key risk metrics and exceedance probability curves.