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Insurance Solutions
Formerly Moody’s RMS
Despite an active North Atlantic hurricane season last year, there was only one landfall in the U.S. in 2023. Idalia became the first major hurricane to make landfall in Florida’s Big Bend region and to impact the state’s northwestern coastal area since the 1896 Cedar Keys Hurricane.
The 2023 report reveals a year marked by the rise of secondary perils.
Julie Serakos - Managing Director, Product Management - and Maurizio Savina - Senior Director, Product Management - discuss what are HD Models, how customers are using HD Models today and the business benefits HD Models bring.
The risk landscape is being reshaped by secondary perils such as flood, hail, and wildfire, which are escalating to medium-sized losses due to exposure spread, climate change, and economic development. This presents challenges for firms struggling to meet their cost of capital.
Catastrophe modeling allows insurers and reinsurers, financial institutions, corporations, and public agencies to evaluate and manage natural and man-made catastrophe risk from perils ranging from earthquakes and hurricanes to floods and wildfires.
The basic framework for modeling the impacts of natural hazards on building inventories can be broken down into the following four modules:
Hazard module
Vulnerability module
Financial module
The hazard module assesses the level of physical hazard across a geographical area at risk. For example, an earthquake model estimates the level of ground motion across the region for each earthquake in the event set, considering the propagation of seismic energy. For hurricanes, a model calculates the strength of the winds around a storm, considering the region’s terrain and built environment.
The vulnerability module assesses the degree to which structures, their contents, and other insured properties are likely to be damaged by the hazard. Because of the inherent uncertainty in how buildings respond to hazards, damage is described as an average. The vulnerability module offers unique damage curves for different areas, accounting for local architectural styles and building codes.
The financial module translates the expected physical damage into monetary loss. It takes the damage to a building and its contents and estimates who is responsible for paying. The results of that determination are then interpreted by the model user and applied to business decisions.
Uncertainty is constant and catastrophe is unpredictable. As natural catastrophes continue to increase in intensity and frequency, the ability to understand and quantify the potential impact of events, including their tail risks and influence on earnings, is now more important than ever.
The Insurance Solutions team at Moody's is dedicated to providing our customers with superior catastrophe modeling that integrates innovative analytics, technology, and science. Learn more about what makes us different.
See how customers use our catastrophe models to outperform.
Covenant Underwriters saw a disconnect between how it priced business and how partner carriers viewed the same risks when assessed with probabilistic catastrophe models. Their portfolio was also impacted by claims arising from hurricanes and severe convective storm events. Overall, there was a need for access to location-based catastrophe risk modeling insights at the point of underwriting to enable a more sophisticated and consistent approach to rating.
A leading European regional non-life insurance company wanted to grow its position in the regional flood insurance market. The company recognized that to achieve this growth it needed to enhance its existing analytical and catastrophe modeling. By integrating Moody's RMS Flood HD Models into their workflow, the company was able to boost its portfolio and achieve an on-demand view of flood risk.
Flood defences play a vital role in protecting people and properties against flooding in the U.K. As climate change increases flood risk over the coming decades, the frequency and severity of floods will increase. This will reduce the effective protection of the U.K.’s flood defences, as the likelihood of flooding overtopping defences increases.
Southern California Edison (SCE) is a retail utility company that handles electrical distribution and transmission serving 15 million people across a region of 50,000+ square miles.
IRB Brasil Re has a long history of reinsurance market leadership in Latin America and continues to maintain that position in nine out of its eleven business lines while also growing to be among the ten largest reinsurers in the world in market value (BRL 31 billion as of May 2019).
As the risk landscape continues to change, ‘secondary’ perils are moving into the spotlight. Over the last decade, the insurance industry has witnessed a significant increase in losses from secondary perils which have also been exacerbated by factors such as exposure spread, climate change, and economic development.
While primary perils typically produce industry-wide losses impacting large swathes of the market, it is secondary peril losses impacting selected (re)insurers that result in the C-suite asking why earnings or financial performance lag behind their peers.
So, perhaps now is the time to redefine ‘secondary perils’ as ‘earnings perils.’
Curiosity, passion, and innovation make high-quality models.
Having the best models is key to enabling the (re)insurance industry to make crucial decisions. Catastrophe models inform insurers how to manage risk aggregations, deploy capital, and price insurance coverage. It also allows insurers to demonstrate capital adequacy to rating agencies.
Just because a catastrophic event hasn’t occurred in the past doesn’t mean it can’t or won’t. A combination of science, technology, engineering knowledge, and statistical data is used to simulate the impacts of natural and man-made perils in terms of damage and loss.
Catastrophe models were originally developed to help the insurance industry underwrite rare, but costly events. Today industries beyond insurance are realizing the benefits of cat models. For example, catastrophe modeling allows land professionals to identify regions of potential risk, and take proactive measures to mitigate their exposure. Government officials can use data from catastrophe models to set land use policy in vulnerable regions. Lenders can also use catastrophe models to improve their lending practices, while savvy surveyors include catastrophe modeling data in surveying reports.
Catastrophe models help you understand risk by translating hypothetical natural or man-made peril losses into real-world impact on your portfolio. Modelers can understand catastrophe losses by running analyzing a variety of loss metrics. Some of the key metrics include:
Earnings risk in the insurance industry refers to the potential variability in profits due to factors such as claims payouts, investment returns, and operational expenses.
Catastrophe modeling plays a crucial role in assessing and managing earnings risk, particularly for property and casualty insurers. By simulating the potential impact of catastrophic events on insurance portfolios, catastrophe models help insurers estimate the likelihood and severity of future disasters.
With general availability set for April, we are excited to announce that a major new version of Moody’s RMS RiskLink®, RiskBrowser®, and related products (Version 24) will be released simultaneously for both on-premises for download and in the cloud as added capability to all relevant Moody’s RMS Intelligent Risk Platform™ (IRP) applications. Some highlights of the upcoming Version 24 release include: A significant update to the Moody’s RMS Caribbean Earthquake Model Updates to Bu...
2023 was the world’s warmest year on record, 1.35℃ above pre-industrial (1850-1900) levels. The exceptionally high temperatures intensified the impact of weather-related disasters, particularly severe convective storms, wildfires, and floods.
When (re)insurers struggle to meet their cost of capital over a longer period, shareholders, board members, and other stakeholders may begin to question whether a firm understands the risk landscape within which it operates. Questions can form around whether a (re)insurer not only understands the risks of large-scale catastrophes driven by established ‘peak’ perils such as tropical cyclones and earthquakes but also smaller and more frequent events typically from ‘non-peak’ perils that can eat into year-over-...
Attempting to make sense of rising global risks based on outdated catastrophe model approaches can feel like using a dial-up modem to surf the web in an age of fiber optics. Scientific and technological advancements have changed the risk modeling landscape and have opened an ‘insights gulf’ that is increasingly hard to ignore, between risk model output that capitalizes on the latest advancements and output that does not. As an example, accurately modeling perils with high-hazard gradients such as floods, ...
A ‘recency’ bias focused on actual events over the past ten or twenty years, their locations, impacts, and consequences, is a predisposition that can apply to many catastrophe risk managers. However, we know through stochastic modeling that each actual event is just one sample from a wide range of possible events, which may all be equally likely. It is certainly helpful to contemplate whether recent catastrophes could have been more or less impactful through small variations in their track, source, or se...
We recently brought together thought leaders from across Moody’s to talk with the media at our 2023 Hurricane Season Recap and 2024 Outlook briefing, to provide a range of perspectives from meteorology to market impact. We looked back at the 2023 hurricane season, together with overall natural catastrophe activity for the year, and looked at what 2024 may have in store, to gauge the possible impact on the insurance industry. Looking at 2023, we saw a North Atlantic Hurricane season that produced twenty na...
The demand for renewable sources of energy grows every year, driven by a range of factors including climate change, energy security concerns, and rising fossil fuel costs. In its Renewables 2021 report, the International Energy Agency stated that global renewable capacity was set to expand by over 60 percent in the next five years, adding over 1800 gigawatts of capacity by 2026. During the past two years, RMS® has seen an increase in demand for more advanced insights and quantification of catastrophe risk fo...
In the U.K., as part of the New Year Honours List for 2022, David Peppiatt, director of humanitarian assistance at the British Red Cross, was awarded an Order of the British Empire (OBE) medal. When I first met David more than 15 years ago, the Red Cross had no connection at all with the insurance markets; indeed, its charter did not allow for involvement in risk mitigation. I was pleased to share information about catastrophe insurance with the Red Cross and arranged a meeting with a Dutch reinsurer who...
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