A range of emerging threats could outpace existing models for tackling terrorism threats, according to a new report from Lockton Re.

Produced in association with advisory practice Blackthorn, the report – Beyond the Blast: Capital Management of Tomorrow’s Terror Threats – considers the changing terror landscape and suggests that it is being reshaped by key drivers including: strategic competition and the state/non-state nexus; political and social polarisation; technological innovations and regulatory gaps; climate change; and convergence of established risk categories.

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 at Lockton Re, said: “Deterministic 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.”

Alex Theodosiou, Blackthorn’s research manager, added: “Simply presupposing that future events will mirror the past can be dangerous in an increasingly non-linear world. 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.”

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