Moody's Publishes New Insurance-Linked Securities Modeling Framework

Moody's Ratings has released a new technical white paper, Insurance-Linked Securities Modeling Framework, outlining how the agency will analyze catastrophe bonds and other insurance-linked securities.

The publication follows Moody's earlier discussion paper in March and a draft methodology circulated for comment in August, completing the firm's return to formal ILS rating criteria.

According to Moody's, the framework begins with catastrophe model output—such as exceedance probability curves—to assess the likelihood of loss events. It then applies each transaction's attachment and exhaustion points to estimate potential impacts on bond principal and investor cash flows.

The white paper also explains Moody's approach to multiyear structures, seasonal perils, and transactions evaluated midseason or after partial loss. These components feed into the agency's calculations of expected loss and weighted average life, two key metrics used in its rating process.

Moody's withdrew its prior ILS rating guidelines several years ago, making the release of this new modeling framework a notable milestone for the catastrophe bond market. The publication gives issuers and investors a clearer view of how Moody's will analyze catastrophe risk and structural features when assigning ratings to ILS transactions.