Verisk Analytics, the risk information, assessment and analytics firm, benefited from the extremely active catastrophe bond market so far in 2014, as subsidiaries AIR Worldwide and Property Claims Service (PCS) earned cat bond issuance related revenues.
Typically, the catastrophe bond business does not really feature during the Verisk reporting and earnings calls, being a very small piece of a much larger overall pie. The Verisk family of business is much broader than the pure property and catastrophe data and analytics units, encompassing all kinds of claims, analytics and information services for the insurance, reinsurance and other industries.
So when the catastrophe bond market does feature heavily in a firm like Verisk’s earnings conference call you know it’s been a good year.
Verisk’s Decision Analytics insurance segment saw attractive growth in the second-quarter, which Mark Anquillare, EVP and CFO at Verisk Analytics, said that cat bonds had a bearing on; “Overall revenue growth was driven by the increased adoption of existing and new solutions as well as a strong quarter for catastrophe bonds.”
But of course, cat bond issuance is a lumpy business, with peaks of issuance activity around reinsurance renewals and slow patches through some other parts of the year.
Anquillare recognised this, saying; “Because of the cat bond revenue, which is based upon market transactions, I would expect growth will moderate a bit in the coming quarters but will be strong for the year.”
That suggests that the revenue made from cat bond transactions in Q1 and Q2 has been particularly strong, which is no surprise given AIR’s continued dominance of natural peril catastrophe bond transaction modelling as well as the continued popularity of PCS’ industry loss data for trigger use. Of course PCS also contributes from other types of transactions, not just cat bonds, with its trigger being widely used in industry loss warranty (ILW) deals as well.
Anquillare was asked by an analyst on the earnings call for more colour on how Verisk thinks about catastrophe bonds and how they contribute to the firms revenues.
Anquillare discussed the use of a modelling firm in insurance-linked transactions, a part of the transaction process where science is important and AIR has ended up winning a lot of this business in recent years. However, Anquillare noted that the issuance cycle remains lumpy and there would be good quarters where cat bonds contribute a lot to Verisk’s revenues and others where issuance is slower.
However the cat bond revenues Verisk enjoys are becoming increasingly important to the firm. Anquillare said; “Generally, though, the trend in insurance-linked transactions and cat bonds has been growing over time so we think that it’s a positive trend broadly. I think the best way to describe the impact is it is not a material part of the cat modeling business, but it becomes increasingly more important.”
Both AIR and PCS likely earn revenues from cat bond and ILW transactions based on the number of deals they are used for as well as often the size of those deals, when it’s a 144A cat bond issuance. With 2014 issuance at record levels so far and deal sizes around average overall, it will have been a very good year for Verisk so far in terms of catastrophe transaction revenues.
The other interesting area at Verisk right now, for us, is the Verisk Climate division and how that teams scientific and technical experience in weather and climate issues and risk transfer could be leveraged both by PCS and AIR going forwards. PCS already uses Verisk Climate data in its catastrophe series reports and we would expect such integration of services will continue going forwards in the Verisk Analytics group.