RMS(one) Summary and Points for Discussion

Transcription

1 RMS(one) Summary and Points for Discussion Prepared by Guy Carpenter 1 April 10, Background: The new RMS(one) platform debuts April 15 th 2014 with actual production starting in October It represents a new direction for RMS, which is the subject of this discussion paper. Guy Carpenter envisions utilizing RMS RiskLink throughout 2014, at least, while we continue to evaluate RMS(one). RMS has historically licensed its catastrophe modeling software to insurers, reinsurers, and reinsurance brokers for fees that consisted of an annual fixed amount, typically based on client-specific written premium. This approach allowed users to utilize the model as much or as little as desired, on the hardware infrastructure of their choice. RMS(one) will be SaaS (Software as a Service), and as such, there is no software provided to the user. Instead, access to the catastrophe models on RMS(one) is provided via the cloud environment that RMS has developed. RMS is phasing out the current license and client hardware infrastructure choice, as the new cloudbased RMS(one) software becomes available. To date, despite requests by its licensees, including Guy Carpenter, the only private cloud license that Guy Carpenter is aware of was granted to Munich Re. RMS clients can choose to have access to RiskLink (the software currently licensed by its clients) through 2019, however, updates to such software will not be made by RMS after Guy Carpenter is supportive of any technology improvements that have the potential to expand Guy Carpenter clients knowledge of their portfolios and their ability to actively manage their portfolios. Guy Carpenter is working closely with RMS to further explore the features and added value aspects of RMS(one), in addition to the associated data security, data extraction, pricing and other operational aspects. Guy Carpenter is initiating a broad based dialogue with many of our clients and markets to make sure that they: have as much background on RMS(one) as we have; are considering the potential benefits and implications of RMS(one); raise factors and considerations that they believe are important; and can give us guidance as to how Guy Carpenter can best advocate and serve the clients best interests. 1 Guy Carpenter Guy Carpenter & Company, LLC provides this summary for general information only. The information contained herein is based on sources we believe reliable, but we do not guarantee its accuracy, and it should be understood to be general insurance/reinsurance information only. Guy Carpenter & Company, LLC makes no representations or warranties, express or implied. The information is not intended to be taken as advice with respect to any individual situation and cannot be relied upon as such. Readers are cautioned not to place undue reliance on any historical, current or forward-looking statements. Guy Carpenter & Company, LLC undertakes no obligation to update or revise publicly any historical, current or forwardlooking statements, whether as a result of new information, research, future events or otherwise. The trademarks and service marks contained herein are the property of their respective owners. 1

2 For additional information on RMS(one), please refer to RMS website at 2. RMS stated motivators and objectives for adopting this approach: Client convenience: RMS historical approach required that it configures its software to operate on a variety of hardware and IT environments. Any software upgrades or patches required users to perform time consuming installs and tests of the installation. Under RMS(one), there will be no need for client maintenance of the platform as there is no software to install and no hardware to maintain. Supporting increased model complexity: RMS is in the process of developing enhanced models ( High Definition models ), which are significantly larger and more complex than the current ones. RMS states that its current framework (RiskLink) will be unable to support these High Definition models. Flexible computing capacity: a cloud environment is scalable as more capacity is needed. By shifting to a cloud environment, the user can request additional capacity or faster analysis time for an additional fee. Added value functionality: RMS indicated it has witnessed many firms develop by-product software (e.g., Guy Carpenter s i-axs) that take the RMS output and add additional capabilities. With RMS(one) the expectation is that a user will at some point be able to access similar capabilities for an additional fee. In addition, RMS(one) will also allow users to make modifications to the software as they see fit client s own view of risk. The user will be assuming all responsibility for the results obtained that are not the RMS default view of risk. Hosting third-party models: RMS(one) is enabling outside firms to have their models reside in RMS(one). For example, JBA, ERN and Risk Frontiers are expected to allow their models to be available on RMS(one). RMS(one) is also open to allowing universities or others with open source code to reach users on RMS(one). Facilitate ease of data transfer: The current information flow is that the cedent transfers data to an intermediary and the intermediary then receives permission from the cedent to provide the data to reinsurers/markets. RMS would like to have all interested parties come to its cloud to access and process information, with fees for each constituent depending on what it does with the data. 3. Timelines: Guy Carpenter has participated in testing for RMS Beta 3 and Beta 4 versions of RMS(one), and our Beta 5 testing began in early March. While previously RMS(one) was intended to be fully released in April 2014 and run in parallel to RiskLink, RMS has modified its statements recently to say that the scheduled launch on April 15 th is intended as General Availability with actual production starting in October 2014, and that the release will in fact be gradual as the platform is being further developed over time. RMS clients are gradually testing RMS(one) and starting to work with it. The first High Definition (HD) model for RMS(one) will be a European Flood model that is scheduled to be delivered in 2015 and will only be available in RMS(one). Based on RMS current schedule, RiskLink (its current software offering) will not be available after 2019 will not receive any further updates after

3 4. Data security: The use of cloud-based applications is increasing globally, with cloud-based environments often hosted by Amazon and other leading third-party providers. Cloud environments typically allow for immediate disaster recovery and speed of access from remote parts of the world. RMS is building and hosting its own cloud, with peak-time support of additional cloud capacity from third-party providers. There will be regional data centers (Toronto and UK as of this writing) with a disaster recovery center based in Iceland. As yet, there is not a scheduled data center for the Asia-Pacific region. RMS states that its information security and privacy policies for RMS(one) conform to ISO 27001:2005; SSAE 16 Type II, and CSA Cloud Control Matrix (CCM) controls and standards. RMS also states it will provide clients with documentation describing its Information Security Management Program (ISMP) upon request. Data security is a critical area for consideration when placing any proprietary data on a cloud environment and when running data through cloud-based applications. With respect to RMS(one), Guy Carpenter has not yet formed an opinion on the security aspects relating to RMS(one). Guy Carpenter will be developing its opinion as it gathers more information and advances with the Beta 5 testing. Guy Carpenter will seek each client s position on the RMS(one) cloud. For clients who are comfortable with putting their data on the RMS(one) cloud, we will ask them to sign a new analytics agreement acknowledging that their proprietary data will reside in the RMS(one) cloud environment and will not be under the direct control of Guy Carpenter or its reinsurer panel. 5. RMS(one) Costs: RMS stated pricing mechanism for RMS(one) includes several fee components as part of accessing RMS(one): Intellectual Property (IP) value: there will be a fee for accessing the IP of the models. Based on Guy Carpenter s discussions with RMS to date, this amount may be roughly the current fixed license fee. Usage-based fees: 1. There will be a RIX charge for every location run/modeled through the RMS(one) cloud that takes ground up loss. This applies per peril and per analysis. Also, additional variable costs will be charged if the user wants a faster speed of analysis -- additional compute capacity will be provided at higher fees. 2. If a client desires to have its data stored in RMS(one), there will be a RIX charge for allowing the data to persist in the RMS cloud. The user can decide to have data stored on its own equipment but that would require movement of data between the RMS(one) cloud and user environment. At present there is not enough information available about expected data transfer speed nor the degree of detail that will be available for download. 3

4 Fees charged based on the number of RMS(one) users. RMS acknowledges that the price increase relative to the fixed fee paid by a client today will be significant; and that the overall cost to a user to access RMS(one) might be in the order of % higher than what the user pays today under RiskLink. RMS states that this price increase will reflect the increased value to the client relative to the present RiskLink. 6. GC Overall Approach: A core capability of Guy Carpenter is to effectively employ the commercial cat modeling tools on our clients behalf given our broad perspective on the industry and our competitive advantage in analytics capability. Guy Carpenter believes the best marketplace is one which allows clients to employ multiple models and move relatively freely from model to model. Guy Carpenter is supportive of improved technology that has the potential to expand our clients knowledge of their portfolios and ability to actively manage their portfolios. Guy Carpenter is working with RMS and supporting the development of this new platform through Beta testing and feedback to RMS about the product offering. Guy Carpenter has held recent discussions with the leadership teams of each of the key cat modeling vendors - RMS, AIR and EQECAT - to enhance our understanding of their vision and their planned roadmap for their platforms and models. Guy Carpenter is initiating a broad based dialogue with many of our clients and markets to make sure they: - are aware of the situation generally; - have as much of the background as we have; - are considering the potential benefits and consequences; - surface factors and considerations we have not recognized to date; - share knowledge and different viewpoints of the situation; and - elicit guidance as to how we can best serve the interests of our clients. 7. Additional Aspects for Consideration: Guy Carpenter has observed that some (re)insurers are considering taking an approach of experimenting with RMS(one) during given the statements by RMS that the release will be gradual and that actual production will start in October 2014, the additional costs expected to be charged for RMS(one), and the need to learn more about data security aspects. Other (re)insurers are taking the approach of wait-and-see by continuing to utilize RiskLink, and delaying their decision on full use of RMS(one) until potentially 2015/2016. From a broader perspective, there are several other cat modeling initiatives / developments currently forming in the industry. Examples include: - The platform by Oasis Loss Modelling Framework Ltd supports the development of catastrophe models by allowing independent developers to create and input the hazard, 4

5 vulnerability and exposure elements of a catastrophe model that can then be combined with Oasis s financial module to create a functioning cat model. The founding members of Oasis include leading reinsurers, insurers and brokers (including Guy Carpenter). Guy Carpenter believes open-source platforms, like Oasis, significantly lower the barrier to entry for academics and small specialist teams to develop catastrophe models and thus will create more views of cat risk. These additional views may be helpful as we critically analyze existing models through strategic initiatives, such as Model Suitability Analysis (MSA). Guy Carpenter also believes that Oasis will further the drive towards greater transparency in the cat modelling industry, which supports our clients desire to better understand their exposure to catastrophe risk. For additional information refer to the Oasis website: - The Touchstone platform offered by AIR Worldwide enables third-party data and models to be provided through Touchstone. The platform is designed to be an open platform, allowing clients to run multiple alternative models on a single platform on the client s own network. For additional information refer to the AIR Worldwide website: 5