Ashish Sabadra: I wanted to focus or drill down further on the insurance ARR. We saw a material improvement there from 6% last quarter to 8% in the third quarter. I was just wondering if you could provide some color, where you’re seeing that improvement. We obviously saw the ExposureIQ product at the Innovation Day. So is it more driven by the Climate Solutions, the RMS acquisition or the core business, the historical ERS business? So color on that one would be helpful.
Rob Fauber: Yes, Ashish, thanks. It’s a good question. Last quarter, I think we talked about hitting that high single-digit mark for ARR growth within insurance and then you see 8%. And that’s, as you said, improved. And I’d say there’s a few things that are going into that. And as you know, we’ve got, what I’ll call, kind of a P&C franchise, which is really historically the RMS franchise. And then we have the life franchise or historically, the Moody’s franchise. And now all of that is our insurance business. And in P&C, we have started to see an improvement in ARR growth from our core RMS customers. And some of that is just good old-fashioned blocking and tackling and great sales execution. And we have a very robust, intelligent risk platform.
That’s the SaaS platform. So we’re having some nice success in migrating people from on-prem solutions to the SaaS platform. And we’re also, as you mentioned, starting to roll out new solutions. It’s giving us an opportunity to continue to not only bring in new customers but also to be able to do more for our existing customers. So that’s one. I would also say that while it may not be showing up in the insurance segment, we also feel very good about the cross-selling synergies that we’re seeing, where we’ve got insurers who may be buying solutions from other parts of Moody’s Analytics. So a good example is around KYC and master data. And then on the life business, so we — over the last couple of years, there was some growth — one of the drivers was around some of the IFRS 17 accounting standards.
Some of that is now in place. But now we’re in a wave of kind of product enhancements and other things. So we still have — actually have some very nice growth in the life business. So all in all, pretty encouraged by the — not only the growth in the insurance business, but I think the opportunity for us to continue to see some further acceleration there.
Operator: We’ll take our next question from Manav Patnaik with Barclays.
Manav Patnaik: Just wanted to ask real quick, any — first off, any disclosures you can give us on revenue or growth in your ESG climate businesses there within Moody’s Analytics? And is this, at this point, still mostly RMS and insurance? Or is — it sounds like you were alluding to some cross-sell opportunities as well. So any color there would be appreciated.
Rob Fauber: I’m going to flip that over to Caroline.
Caroline Sullivan: Sure. Maybe we’ll answer the RMS question first. So we are on track to achieve $150 million of RMS-related incremental run rate revenue by 2025. And with regards to climate and ESG, for 2023, we expect about $200 million in annual revenues. They’re growing at a double-digit pace. So there’s really ongoing demand from our customers with regards to more information around climate that’s really helping us out with that.
Rob Fauber: Yes. And I’d say that, obviously, the bulk of what Caroline just talked about is from RMS. Beyond that, we’ve got ESG scores. We’ve got the ESG module, which is an extension of our CreditView module. And we also have a sustainable finance franchise that produces second-party opinions on labeled bond issuance out of the rating agency. All of that is what goes into ESG and climate. And the other thing I would say is that, I mean, Caroline is right. We’ve got, I think, healthy demand — ongoing demand. But I gave the example of integrating the RMS transition and physical risk data and models into our banking solutions. So that was always the plan. And those kinds of things are going to help us continue to grow that overall pool of revenue from ESG and climate going forward.
Operator: And we’ll take our next question from Andrew Steinerman with JPMorgan.
Andrew Steinerman: I just wanted to jump into RMS a little bit more. First here, could you mention how well RMS is growing in the third quarter? And surely, you definitely caught my ear with the earlier comment about how Moody’s is integrating the RMS climate risk data into ESG solutions for banks. So my question is how much of RMS revenues are now coming outside of that core P&C insurer? And are the products really different when you’re delivering RMS data to banks than insurers?
Rob Fauber: So I don’t think — we don’t disclose RMS growth at the — on a quarterly basis. But I can tell you that our target of RMS revenue, including synergies, to grow in the high single-digit range for 2023, that’s — we’re still on track for that. And as I mentioned, the two components is RMS growth is, what I’ll call, core growth has been picking up. I think we all understand it was a fairly low-growth profile when we acquired it. That is improving. And we are starting to get more and more synergy revenue. And I guess the other thing I’d say, Andrew, is something like integrating the content into our banking solutions, we’ll capture that as synergy revenue. But you won’t necessarily see that in the insurance segment, which is why I think it’s important for us to be able to give the color on how we’re capturing synergy across the broader business.
And Andrew, can I make sure I just understand that last bit of the question, it was the difference in insurance delivering in insurance and banking?
Andrew Steinerman: Yes. So when you look at the type of RMS climate data that banking customers are consuming, is it very different than insurers? And let me just remind you, like when you look at a cat model, you’ve got to be expert genius to consume that data.
Rob Fauber: Yes, you do. I actually, in a way — I’ve said this before, in a way, I’ve always — I’ve sometimes thought of that content is in some ways trapped in very sophisticated insurance workflow software, right? So there’s really, really rich, detailed weather models, climate models and massive amounts of data that has historically been used in the RMS software for the larger global insurers and reinsurers and brokers around the world. And the reality is — and this was a main driver of why we bought this company. We knew that there was going to be a lot of demand for that content but delivered in a different way. So for instance, we’ve come up with something called Climate on Demand, where we can actually do fairly simple scores and give you an average annual loss estimate.
So this is the financial quantification of a weather event on a given property. And we can go down to a 10-meter resolution. So banks are saying, “Hey, I’m underwriting a commercial loan. I’m securing it by — I’m underwriting loans, securing it by commercial real estate. And I understand the insurance policy is an annual policy, but this is a 15-year loan.” And so I want to start to understand — so we are doing exactly what you just described is how do we take that content and deliver it to customers in different ways that are consumable for them in their workflows in ways that are valuable? And that, I think, was very difficult for RMS to do as a stand-alone company. That’s part of the value that we’re bringing here.
