Moody’s Corporation has agreed to acquire one of the insurance and reinsurance market’s leading catastrophe risk modelling firms, RMS, for a reported price of US $2 billion, in a deal expected to close later this year.
Moody’s Corporation and RMS said they have entered into a definitive agreement for Moody’s to acquire RMS, for the $2 billion price tag from its owner Daily Mail and General Trust plc.
The acquisition of RMS is expected to “immediately increase Moody’s insurance data and analytics business to nearly $500 million in revenue,” the announcement said.
It will also “will accelerate the development of the Company’s global integrated risk capabilities to address the next generation of risk assessment,” Moody’s further explained.
We reported back in early July that RMS was being offered for sale by its owner DMGT.
RMS’s product offering encompasses more than 400 risk models covering 120 countries and it is a leading provider of climate and natural disaster risk modeling serving the global property and casualty (P&C) insurance and reinsurance industries.
For the fiscal year ending September 30th 2021, RMS is expected to generate roughly $320 million of revenue and adjusted operating income of approximately $55 million.
“Today’s leaders face a complex, interlinked world of risks and stakeholders,” explained Rob Fauber, President and Chief Executive Officer of Moody’s. “In the context of a global pandemic, the climate crisis and increasing cyberattacks, our customers must manage a wider range of risks than ever before. We are excited to add RMS and its team of world-class data scientists, modelers and software engineers to the Moody’s family to help accelerate solutions that enable customers to build resilience and make better decisions.”
“Moody’s is an exceptional fit for RMS and our customers,” added Karen White, Chief Executive Officer of RMS. “Global risks are now more complex, connected and systemic. Climate change and catastrophic events like extreme weather, pandemics and cyberattacks have broader and more harmful impacts across virtually all industries. We share the vision to bring a global, integrated risk assessment platform to our markets with the goals of deeper, more sophisticated risk insights and greater global resiliency. Within Moody’s, I’m confident RMS will be able to accelerate technology and model innovations while combining with Moody’s core data and analytics offerings for powerful, holistic solutions. The team and I are excited to bring new value to customers as we transform how we are able to understand and mitigate the future of risk.”
The two companies believe that the acquisition will builds on both Moody’s and RMS’s complementary customer bases and capabilities in the life and P&C insurance and reinsurance segments.
Moody’s believes that, “RMS will meaningfully accelerate Moody’s integrated risk assessment strategy for customers in the insurance industry and beyond, with significant capabilities across climate, cyber, commercial real estate and supply chain risk.”
As part of its Moody’s Analytics platform, the firm expects that RMS will generate up to $150 million of incremental run-rate revenue by 2025.
Moody’s said that it will fund the acquisition of RMS through a combination of cash-on-hand and the issuance of new debt, with the deal expected to close in late Q3 2021, subject to the satisfaction of customary closing conditions.
RMS is a catastrophe risk modelling company that is central to global insurance, reinsurance and insurance-linked securities (ILS) markets, as one of the main views of risk utilised across the industry today.
As a result it is relied upon by re/insurers and also ILS fund managers and investors as well, especially, for the ILS market, RMS’ services that enable catastrophe bonds to be analysed and live catastrophe event impacts to be explored.
RMS’ business model faces growing competition from insurtech start-ups and analytical companies, that are in some cases threatening the major model providers by providing more niche and focused services, often targeting single perils or climate specific risks, instead of trying to create risk models for everything.
But, becoming part of Moody’s is an interesting fit, not least because of Moody’s expansion into climate data services in recent years, especially for investors.
The joining of a leading catastrophe risk modeller with a rating agency can provide opportunity for the pair, through synergies, but may also raise a few initial questions (over rating agency ownership of a leading cat risk modeller) in the re/insurance industry at the same time.