Three New High-Definition Models Look to Help Tackle Risk Challenges

Benjamin Franklin once famously said, “In this world, nothing can be said to be certain except death and taxes.” Perhaps he should have also added “catastrophes” at the end of his quote.  

Across the world, catastrophes are increasingly affecting people's lives. According to Aon’s annual report, global insured cat losses are trending at a five-year average of around US$125 billion per year, representing a 25% increase over the previous five-year average.

To ensure we deliver the most relevant views of risk to the insurance market, Moody’s has accelerated the pace of its model updates.

Over the past three years, we have released over 60 unique models. During 2025, we will add three more notable natural peril models to this list: Australia bushfire, Europe earthquake, and North America severe convective storm, all delivered using our sophisticated and proprietary high-definition (HD) simulation methodology.

Here are a few of the highlights:

 

Australia Bushfire HD Model

With moderate to high exposure to all weather-related perils, according to Insurance Council of Australia (ICA) data examining all insured losses in the past 58 years, severe convective storms on the continent account for 36% of losses, cyclones 27%, flooding at 23%, and bushfire at 14%.

Cyclones are back in focus in 2025; recent flooding from Tropical Cyclone Alfred in March has reached AUD$1.3 billion (US$830 million), and is expected to be the largest cyclone loss since Cyclone Debbie in 2017.

Australia is relatively well-insured overall, with a substantial insurance penetration rate; however, there is upward pressure on insurance premiums, particularly in high-risk parts of the country, reflecting weather extremes, inflationary pressures, global reinsurance prices, and supply chain shortages. Additionally, the population of Australia is growing in places with greater exposure to bushfires, floods, and cyclones. 

For all these reasons, Moody’s is committed to building a complete suite of catastrophe risk models for weather-related perils impacting Australia, utilizing our unique HD methodology and leveraging the power of Moody’s Intelligent Risk Platform™ (IRP). The model suite will be fully consistent from a weather perspective.

As part of the model suite, we are pleased to announce the planned release of our first-ever Moody’s RMS Australia Bushfire HD models in September 2025. There have been six recent bushfire events when insured losses exceeded AUD$1 billion. Among the largest recent fires are the 2019-2020 Black Summer bushfire season, which led to an AUD$2.4 billion insured loss.

With approximately 14% of losses attributed to bushfires, and losses significantly increasing over recent years, the release of our new model is well-timed to help insurers understand the risk potential of bushfires.  

 

Europe Earthquake HD Model

There has been a lot of focus in Europe recently on weather-related peril risk and its impact on insurance earnings, with notable windstorm and hail events. However, earthquake risk is not to be overlooked, as earthquake losses drive the capital needs of most European insurers writing property risk. Moreover, these losses are compounded by wider economic and inflationary factors, especially being felt in places like Turkey.

On February 6, 2023, the Kahramanmaraş earthquake sequence occurred in southern Turkey, causing two large magnitude earthquakes (M7.8 and M7.5) within nine hours of each other, falling within the 72-hour clause of many reinsurance contracts in Turkey. These earthquakes were very complex, partly because they ruptured multiple faults simultaneously. The Moody’s RMS loss estimate for this event is over US$5 billion. 

Our new Moody’s RMS Europe Earthquake HD model will be the first model in the market to explicitly include multi-rupture events similar to the Kahramanmaraş sequence, as part of the stochastic event set.

These events are so important to capture because they are larger in magnitude than if the faults ruptured individually, and their ruptures are longer, with the potential to correlate otherwise uncorrelated exposure concentrations.

Leveraging the IRP's cloud computing power, we can model these rare, yet exceptionally strong earthquakes, and with the millions of events we are modeling, give assurance that we have captured the frequency appropriately. 

The Moody’s RMS Europe Earthquake HD model will be released in September this year.

 

North America Severe Convective Storm HD Model

Anyone writing property insurance in North America is familiar with increasing losses from hail, tornado, and straight-line wind events, collectively known as severe convective storms (SCS).   

According to the same Aon report, average annual losses from U.S. SCS events were over US$42 billion across the past five years, with 2023 standing out with US$57.6 billion of loss. Overall, in 2023, there were 21 events in the U.S. with over US$1 billion in losses, and 19 of those were attributed to SCS perils, representing nearly 80% of the total insured loss in 2023. The average loss of the last five years has doubled from the previous five-year average.

Professor Bob Hartwig at the University of South Carolina, Darla Moore School of Business, stated that homeowner insurer combined ratios have stayed above 100% for the past five years. This has resulted in nationwide double-digit average rate increases for homeowners during the past two years, in an attempt to compensate for the losses. Moreover, reinsurers continue writing less coverage for high-frequency SCS peril risk, so the market needs a new plan.

This is where Moody’s steps in with our forthcoming North America Severe Convective Storm HD models, due for release in December 2025.

By modeling millions of tornadoes, hail, and straight-line wind events, we can assure the market that we have the complete spatial coverage to represent the risk, wherever properties are located.

Our damage and loss estimates are informed by an impressive US$50 billion of individual company claims experience across homeowners, agriculture, commercial, specialty, and auto insurance lines. 

We believe the Intelligent Risk Platform and our HD models are the right solution at the right moment to help the market address its challenge of managing increasing SCS risk. We are super excited to introduce this model to the market later this year and start to bring the market back to a healthy state.

 

Why high-definition models, and why now?

With rising losses and increasing risk complexity worldwide, no insurer is immune to market pressures. From portfolio steering to capital management, catastrophe models are invaluable tools for making more informed risk decisions.

Yet the industry still struggles with “black box” modeling solutions that leave uncertainty about whether the risk is properly captured. Other solutions compute loss results without a means to test loss accuracy. You just accept the results and use them for important decisions. High definition (HD) models are significantly more sophisticated than traditional simulation model methods available in the market. 

First, Moody’s RMS HD models leverage the computing power of the Intelligent Risk Platform. This is important because it allows our HD models to model the number of events needed to ensure proper spatial coverage across a full range of event sizes and severities. There is no need to take shortcuts or boil down event sets to obtain better modeling run times.

Second, while HD is simulation-based, it takes simulation to the next level by opening up the transparency of the model in a way not seen before from other models. HD models allow you to test the accuracy of the modeled losses, understanding if the losses “out of the box” are biased high or low, and fix them (!) so they represent the most accurate losses. Having this ability will change how you use models for setting rates or when deciding how much capital is needed to support a growing book of business.

Does this mean no more “model miss?” Really? Yes, really. HD gives you the insight to understand the areas of greatest uncertainty, allowing you to make stronger and more prudent decisions about how much to charge, where to grow your book of business, identify areas that are utilizing your important capital the most, and analyze the benefit of using reinsurance capital or your capital. 

It is a pleasure to share these latest innovations to some of the brightest minds in the industry at our Exceedance 2025 conference in Nashville (May 19-22) to showcase the latest innovations, and if you are here with us, our Wednesday night customer event gives you a chance to wear your cowboy boots; I’ll see you at the Honky-Tonk!