Earnings risk and catastrophe modeling

The catastrophe risk landscape is undergoing major changes. The insurance industry has witnessed a significant increase in losses from secondary perils, which have also been exacerbated by factors such as exposure spread, and economic development.

For property and casualty firms, management of earnings risk is inherently tied to loss volatility, with natural catastrophe risk being one of the main drivers. To navigate these challenges, Moody’s combines extensive data, industry-leading catastrophe modeling, and robust modeling infrastructure to deliver insights that go beyond catastrophe events to uncover the hidden drivers of volatility and risk correlations at higher levels of granularity.

With Moody’s insights, insurers can better understand the factors affecting their profitability and stability, helping them make informed decisions with confidence.

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How can we help?

Moody's helps improve your ability to manage year-over-year financial losses by leveraging advanced catastrophe models that provide deeper insights into potential risks. These models help you anticipate and quantify losses, optimize portfolio management, and make better decisions so you're prepared for large-scale events as well as frequent, small- and medium-sized events that can quickly add up to billions of dollars in annual losses.

Strengthen decision-making

Moody’s high-definition (HD) modeling framework offers deeper granularity and transparency, allowing insurers to pinpoint key risk drivers and enhance capital management. This can lead to greater confidence in decision-making, helping firms deploy capital and manage portfolios with a clearer understanding of potential uncertainties and interconnected risks.

Improve risk assessment with enhanced data and technology

Leveraging advanced data assets and computing power, insurers can model perils with high hazard gradients — like floods and wildfires — in greater detail. This reduces uncertainty in risk assessments, leading to more accurate pricing and better resource allocation, ultimately driving profitability.

Adapt to emerging risks with integrated risk insights

By incorporating new risk insights, including forward-looking views and sustainability factors, Moody’s modeling helps insurers address not only traditional catastrophe risks but also evolving financial and regulatory challenges. This holistic approach equips insurers with the tools needed to navigate both catastrophic events and broader market shifts, enhancing long-term financial resilience.

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Executive perspective

The growing impact of secondary perils on losses is leading to increased pressure on year-over-year financial performance. These smaller, more frequent events are eroding insurers’ earnings, often [going] unnoticed until they accumulate into significant financial challenges.

— Maurizio Savina
Senior Director of Model Product Management, Insurance Solutions, Moody’s

Solutions

01 Risk Modeler
02 Catastrophe models
03 Finance
04 Forward-looking catastrophe models

01 Risk Modeler

Risk Modeler

Our platform integrates advanced catastrophe modeling tools with cloud computing for real-time simulations and detailed risk assessments. It allows insurers to customize risk views and understand earnings volatility due to primary and secondary perils.

Learn more

02 Catastrophe models

Catastrophe models

Modeling invested assets helps create an integrated investment value chain and can help build optimal portfolios that reflect an insurer’s liabilities, capital, regulatory regime, and objectives.

Our models also help customers build robust, transparent, and quantitatively assessed strategic asset allocations and multi-asset investment strategies that are well understood and scrutinized in the context of a company’s liability profiles.

03 Finance

Finance

Combining actuarial and accounting expertise, we support financial planning, capital budgeting, and regulatory reporting. Our tools assist with measurement, accounting, disclosures, custom analysis, and data management for insurers' general ledgers.

Moody’s also supports advanced accounting frameworks such as IFRS 9, IFRS 17, and LDTI.

04 Forward-looking catastrophe models

Forward-looking catastrophe models

Moody’s RMS industry-leading, comprehensive catastrophe models capture the near- and long-term risk outlook.

Each model utilizes the same probabilistic modeling approach for quantifying risk across all four Representative Concentration Pathways (RCP 2.6, RCP 4.5, RCP 6.0, and RCP 8.5) at five-year intervals from 2025 to 2100 .

Why Moody's?

High-definition (HD) modeling

The HD framework is an evolution of our modeling methodology designed to better showcase the complexities of various perils, regions, and interconnected risks. Greater flexibility and transparency of model results and, more specifically, model uncertainty provide greater clarity of risk drivers and help increase confidence in decision-making for the broader marketplace.

Data-driven insights

Moody’s is committed to enhancing data quality by leveraging our rich data resources and services, including specialized assets such as our commercial real estate portfolio. Meaningful depth and breadth of data granularity, extensive intelligence, and analytics help bridge the information gap for improved risk assessment.

Advanced technology

For more than 30 years, the world has used catastrophe models with limited computing power, which has constrained the granularity required to accurately model perils with high hazard gradients, such as floods, severe convective storms, and wildfires. The immense power and scale of Moody’s Intelligent Risk Platform™ helps clients explicitly model correlations of risk at the highest levels of granularity to reduce uncertainty and volatility in risk assessments.

New risk insights

Moody’s integrates cutting-edge insights on physical and transition risk; sustainability; and know your customer (KYC) across underwriting and portfolio management. This provides (re)insurers with a comprehensive view of evolving risks, helping them make more informed decisions in today’s increasingly interconnected and complex landscape.

Case studies

case study

Evaluating the performance of UK flood defenses

case study

Cat Accelerate: delivering data automation and integration in a fraction of the time

case study

Wildfire risk: quantifying the impact of mitigation measures in the power sector

blog

Oct 10, 2023

Moody's

What is high-definition (HD) modeling?

Discover how HD models provide more precise and transparent risk assessments using advanced technology. This blog highlights the advantages of HD modeling, including higher resolution and improved accuracy compared with traditional approaches. Learn how these models help insurers better manage complex risks like floods and wildfires.

whitepaper

Moody's

Mastering earnings risk: a study on European portfolio management

Explore how non-peak perils like hail and floods can erode earnings and why improved risk models are essential. This whitepaper offers key strategies to enhance risk management and stabilize financial performance.

blog

Nov 11, 2024

Moody's

Time to master the growing threat from earnings risk

Understand the growing threat of earnings risk as non-peak perils increasingly affect insurers' profitability. This blog details how these risks erode year-over-year earnings and why traditional models may overlook their complexity. Discover strategies to better manage earnings risk and enhance financial stability.

article

Disrupting the flow of earnings risk losses

This article discusses how secondary perils like floods and wildfires are increasingly impacting insurers' earnings. Moody’s employs high-definition modeling to provide better risk assessments for these frequent events, offering insurers more control over managing earnings volatility.