NEW YORK—Standard & Poor's Ratings Services placed its ratings of 16 natural peril catastrophe bonds issued by insurers under review for a possible downgrade due to Risk Management Solutions Inc. releasing its updated U.S. hurricane model.

It had been expected that the updated model released in February would have some impact on the catastrophe bond market, though it is unclear whether the model pricing will affect primary insurance or reinsurance pricing.

RMS' updated model—RiskLink V11 U.S. Hurricane Model—doubled the modeler's one-in-100-year estimate for insured hurricane losses in Texas, increased its loss estimate at least 75% in the Middle Atlantic region, and had smaller increases in Florida. The model includes higher inland wind speeds; greater building vulnerability; updates of secondary modifiers, such as roof type and construction; and increases in modeled storm surge losses.

“We have come out with an updated view of hurricane risk,” said Peter Nakada, Hackensack, N.J.-based director of RMS RiskMarkets. “Hurricane risk is higher than we originally thought, and it's a logical consideration and ratings action (by S&P) based on that.”

Gary Martucci, New York-based director and catastrophe bond analyst with S&P, said the rating agency was aware of that the model was being updated, that RMS said there would be some changes and that the marketplace was aware of the expected changes.

“We came out with (ratings news) when we did because the model had been accepted by the marketplace at some level and prior to the windstorm season,” Mr. Martucci said.

While S&P put the 16 cat bonds on CreditWatch, including those issued by Montana Re Ltd. on behalf of Flagstone Reinsurance Holdings Ltd., Lodestone Re Ltd. on behalf of Chartis Inc., Ibis Re Ltd. on behalf of Assurant Inc., Foundation Re III Ltd. on behalf of Hartford Financial Services Group Inc., Calabash Re III Ltd. on behalf of Swiss Reinsurance Co., and Longpoint Re II Ltd. on behalf of Travelers Indemnity Co.

William Dubinsky, New York-based managing director and head of insurance-linked securities for Willis Capital Markets & Advisory, said S&P's actions really offered no change from the cat bond investor's point of view of how the bonds are evaluated.

“Investors take a multimodel view of risk similar to reinsurers,” Mr. Dubinsky said. “Three to five years ago, it was more of a single-model approach, but not anymore. All of the models are valued and that is why there is a multimodel view.”

Other valued catastrophe modelers include EQECAT Inc., which said it was refining its north Atlantic hurricane model to be released in June, and AIR Worldwide Corp., which could not be reached for comment.

Though not surprised by S&P's actions, Mr. Nakada said he would prefer ratings agencies to use a more holistic approach to cat bond ratings and have other models be part of the evaluation.

Further, he said it's possible that insurers or reinsurers may move away from using RMS' model in light of S&P's actions, but that he is confident they won't, given the data it supplies and the science behind the model update. “We think that people will want to use the RMS model for its view of risk, and really the question is: Do they believe the model and that it is unbiased and provides the best science and data possible? That is the real litmus test,” Mr. Nakada said.

Reinsurers were already adjusting their hurricane models loss estimates prior to the RMS upgrade in instances where they thought the numbers were too low, said Karen Clark, president and CEO of Boston-based consultant Karen Clark & Co. and developer of the first hurricane model, knowing there would be changes in damage and exposure estimates.

How rating agencies interpret the RMS model will determine its effect on the market. If pricing goes up, rating firms will determine whether primary insurers need to cut back on writing coverage in certain areas, buy more reinsurance or put up more capital as a result of the model's updated estimates, she said.

“If rating agencies use the new loss estimates and/or reinsurance prices go up, the model is going to have a big impact on the marketplace,” she said. “It's bad if a model dictates underwriting strategy, because models are supposed to support underwriting decisions, not dictate them.”