Terror threat targeted by new Lockton Re report

Lockton Re has launched a new report – Beyond the Blast: Capital Management of Tomorrow’s Terror Threats.  Working with Blackthorn the London based advisory practice specialising in malicious risk, the report considers the changing terror landscape, bringing together insights into the threat landscape from Blackthorn with modelling reactions from Lockton Re’s Senior Cat Modeller, George Wragg.

Niki Whitley, director at Blackthorn, said “For a reinsurance market primarily concerned with major loss events, acknowledging that further change is inevitable raises important questions about the validity of long-standing assumptions around terrorism events that underpin scenario modelling and pricing. As threats continue to evolve and associated impact severity (from an insurance perspective) remains dynamic, traditional processes could become increasingly misaligned with the realities of the risk transfer environment.”

The evolving landscape is being reshaped by five key drivers:

• Strategic competition and the state–non-state nexus

• Political and social polarisation

• Technological innovations and regulatory gaps

• Climate change

• Convergence of established risk categories

Alex Theodosiou, Blackthorn’s research manager, said, “Simply presupposing that future events will mirror the past can be dangerous in an increasingly nonlinear world. As highlighted, threats are increasingly interconnected and mutually amplifying – from cyberattacks that cascade into physical infrastructure failures to climate events that exacerbate social unrest and political violence. For reinsurers, the challenge lies in identifying fundamental changes that could alter core modelling assumptions before significant losses materialise.”

The report looks at current standardised practices and issues concerning: exposed limits by radius, using model ‘what-if’ scenarios, issues around data for geocoding, building characteristics and emerging realistic disaster scenarios.

George Wragg, senior cat modeller, Lockton Re, said: “Deterministic WTPV (War, Terrorism and Political Violence) models, which simulate realistic ‘what-if’ bombing scenarios based on blast radius and damage gradients, offer a more accurate and nuanced view of portfolio risk compared to a traditional 100% PML approach. Ultimately, leveraging deterministic scenarios helps secure better-informed terrorism reinsurance strategies by aligning them more closely with realistic risk profiles. Modelling capabilities need advancement, and to take advantage of future development, investment in data quality now will enable quicker adoption, resulting in more accurate loss estimates.”

Ongoing trends in the evolution of the threat landscape show no sign of abating. Strategic competition is intensifying rather than stabilising, technological development continues at a rapid pace, political polarisation appears to be deepening and climate pressures are mounting.

Paul Upton, chairman of Specialty Division, Lockton Re, concludes “The convergence of these factors suggests that volatility is not a temporary condition to be weathered but a fundamental characteristic of the contemporary operating environment. For the reinsurance industry, this reality necessitates continuous monitoring of threat developments and proactive analysis of how these various factors might intersect to create new risk scenarios. The capacity to think ahead about emerging threats and their potential convergence is no longer a competitive advantage but an operational necessity for sustainable risk management in this age of volatility.”

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