Owners of Risk Management Solutions (RMS) argue that the millions poured into the development of its cloud-based modeling solution will eventually pay off, despite continued single digit revenue growth, fewer reinsurance players and the evaporation of a beneficial accounting treatment that cushioned its bottom line.
RMS revenues grew by just one percent in 2016 and “low single digit underlying revenue growth” is expected into 2017, according to earnings released by owners Daily Mail and General Trust (DMGT) last week.
Revenues are under pressure despite the roll out of its much marketed cloud based and “open source” catastrophe modeling platform RMS(one) in 2013 and the launch in September of the first tool associated with the platform, called Exposure Manager.
“Given the continued consolidation in the [reinsurance] industry and the limited impact that RMS(one) is expected to have on short-term revenues, underlying revenue growth is expected to be in the low-single digits in FY 2017,” the firm said in its earnings statement, adding that it will also absorb an additional £25 million of incremental operating expenses next year tied to RMS(one) because of accounting requirements.
RMS leadership argues that the true benefit of RMS(one) will occur in 2018 as it rolls out the second tool, called Risk Modeler next year, and as clients begin to adopt it over existing catastrophe model solutions.
“As a reminder the benefits of RMS(one) will flow through in a more material way in fiscal ’18 than in ’17,” said Stephen Daintith, Finance Director at RMS during the investor call. “[It] will be the revenue growth that will drive the margin progression in ’17, ’18 and [beyond]. So the cost base that stands today will not increase significantly as RMS(one) starts to ramp up. We’re very much looking for revenue growth driving the margin going ahead.”
Given the complexity of the RMN(one) project, DMGT Chief Executive Paul Zwillenberg added that progress in both the development and revenue of the product will remain measured.
“We will be prudent and measured in how we bring customers onboard to make sure that we get it right, and we set the stage for future roll-out,” Zwillenberg said. “This will show through in improved revenue growth and margins. I’m cautiously optimistic about the future of RMS. Realistic and optimistic.”