AIR Worldwide has modeled 91% of the catastrophe bond tranches issued since rival Risk Management Solutions (RMS) updated windstorm product last year, and has been the only windstorm model used by the cat bond market in 2012, according to a report issued Tuesday by Swiss Re.
AIR has modeled 51 of the 55 separate tranches issued between February 2011 and the end of June 2012, representing $6.5 billion of the $7.1 billion bonds issued. Every natural catastrophe bond issued so far in 2012 was modeled by AIR, Swiss Re said
“So while investors might have preferred more diversification in modeling firms, they have accepted the predominant use of the AIR mode,” the report states, adding that AIR is also outstripping rival EQECAT in catastrophe bond use. “It is clear that the market is functioning at a high level while using one modeler.”
On February 28, 2011, RMS released its RiskLink V11 U.S. Hurricane module, which included changes such as including higher inland wind speeds, greater building vulnerabilities, and modifications storm surge assumptions. The changes resulted in a significant increase in the loss exposure for bonds that relied on the method. In April of last year 17 catastrophe bonds were placed on credit watch as a result of the new RMS model, with the rating agency finally downgrading 11 structures including Foundation Re, Loadstone Re and Calabash Re later in 2011.
“Since the release of RMS v11, the ILS market has focused on using AIR as the primary independent modeling firm for new natural catastrophe bonds,” the Swiss Re report concludes.