Moody’s Brookes: Improved cyber and secondary perils data creating ILS opportunities

Improved data and analytics around cyber incidents and secondary perils will spur continued growth in the ILS market, according to Ben Brookes, managing director, consulting services, insurance solutions at Moody’s.

Speaking to The Insurer TV as part of#ReinsuranceMonth, Brookes reflected on the ILS market's response to significant events in the first half of 2024, including Hurricane Beryl and the CrowdStrike IT outage.

“If we think back to Monte Carlo last year, we were wondering when the first cyber catastrophe bond would come to market,” said Brookes. “Here we are 12 months on, talking about the impact of a cyber event on the ILS market. That represents great progress.”

Brookes noted that while this year’s events had not delivered substantial losses to the ILS market, they provided valuable learning opportunities. He stressed that Beryl’s early intensity was a “reminder that we need to be very vigilant about modelling today’s climate”.

He also flagged the importance of live catastrophe response analytics in improving market liquidity, highlighting the market’s growing emphasis on real-time data.

The conversation then shifted to the rising tide of insured losses, with annual nat cat losses exceeding $100bn for the fifth consecutive year.

“I think there's a real opportunity for ILS funds to take on more of those risks as they grow in nature,” Brookes said, emphasising the need for a more granular, bottom-up approach to modelling secondary perils such as floods, which require detailed and localised data.

“I think funds are seeing that opportunity,” he added. “And I think funds and other stakeholders are readying themselves for that provision of capacity, and also for the long run, through the development of analytics around those perils.

“What I think is really quite interesting about them is the degree to which it requires a more bottom-up, granular approach to the analytics themselves. If you think about the nature of some of those earnings perils, something like flood is a very, very granular peril and it requires this much more bottom-up approach to analytics. This, in turn, requires the adoption of these very detailed models and the use of things like the cloud-native platform.”

He added: “It then drives these follow-on conversations about the availability of information within the market to feed into those very detailed models. And so we're enjoying a lot of conversations around those topics at the moment.”

Moody’s tripling cyber analytics investment

Brookes also addressed the changing landscape of cyber risk, acknowledging Moody’s commitment to tripling its investment in cyber analytics.

“We think about cyber risk as something that could easily be the same size as the hurricane risk market,” he said.

As the ILS market continues to expand, Brookes predicts the next frontier will involve tackling longer-tail lines such as casualty risk. However, challenges remain in structuring catastrophe bonds over periods longer than three to five years.

“There’s appetite for exploring those sorts of things,” he said, highlighting the potential for further innovation in the market.

Brookes expects one of the key topics at this year’s Monte Carlo Rendez-Vous will be how ILS firms can enhance their analytics, particularly in relation to secondary perils and pricing efficiency.

“There’s phenomenal potential for increasing the sophistication of analytics,” he concluded. “The opportunity that it provides is simple – help cover more risk.”

Watch the 13-minute interview with Moody’s Ben Brookes to hear more about: