Reinsurers have a crucial role to play in Cyber Solutions. Dennis Culligan sets out his thoughts. The debate over cyber cover continues and Dennis Culligan of risk, insurance and claims management company Longdown|EIC Risk Consulting Ltd warns that the market has to ensure that what it offers is fit for purpose
Much has been said about the need for the re/insurance market to drive growth into new areas. The closure of the protection gap for cyber risks remains a chasm which provides opportunities but so do the changing needs of the market’s existing clients and none more so than the issues around the growing cyber threat.
In the marine and energy space, for so long identified as an area where firms were behind the curve on security efforts, we have witnessed a major shock with Maersk badly affected by the Wannacry attack. For one of the world’s largest shipping firms to fall foul of cyber criminals is a wake-up call to the wider international marine and energy community.
However, is the re/insurance sector providing the products which meet the needs of the client? Since 2013, cyber risk has remained in the top three concerns reported by corporate risk managers in Longdown’s annual survey of risk and insurance challenges. So far, however, this has not translated to a large scale purchase of cyber insurance products beyond the area of compensation for third party data breach – predominantly of interest to retailers and financial service companies.
A major concern of energy companies at present is the fact there are a myriad of definitions as to what exactly constitutes a cyber risk event across the underwriting community.
As such, the fears around the level of potential exposure, the lack of claims data and the concerns over the ability of cyber criminals or governments to launch crippling cyber attacks has seen insurers become more risk averse.
The question we are asked is whether cyber cover should be provided in traditional policies or should be ring-fenced in specific cyber policies. Our view remains that a stand-alone cyber cover is probably the better option as long as the cover is fitted to the specific needs of the client.
At present, cyber products tend to focus on third party loss in terms of data breach or theft. For the energy sector, the much greater threat can be damage to assets and potentially catastrophic revenue loss caused by hackers accessing Supervisory and Control Data Access (SCADA) systems.
A second issue remains that of the availability of levels and limits of coverage. The questions around the exposures and risk aggregation continue and, as such, firms have struggled to access the necessary levels of coverage to meet their needs.
The question, therefore, is how the market reacts, and in many ways that response will be driven by the reinsurance market. It is clear that the primary underwriters remain reluctant, at best, to commit to the limits which many major corporations are keen to buy and also to deliver more bespoke coverages which meet the specific needs of certain sectors of the business community. Some senior market practitioners have doubted whether cyber risk should be the subject of conventional insurance at all, given the systemic nature of the exposure and the difficulty in assessing aggregations.
At a time when the market is looking at new business opportunities, however, the provision of cyber cover is an opportunity which is not only current but one where there is significant pent-up demand from insureds across all sectors. The increasing regulatory attention on cyber risk which will require companies in certain sectors to report cyber hacks will only accelerate such demand. The consideration of cyber insurance is rapidly becoming part of good corporate governance.
Cyber insurance should no longer be deemed as a potential for the future. The need for cyber solutions is current and real but it will take the reinsurance market to commit to supporting its cedants to a level which will make the coverage viable for the market to truly establish itself.
UK regulator to allow EU insurers to operate normally post-Brexit
A number of representative bodies and Lloyd’s have welcomed the announcement by the Bank of England that it will allow EU banks and insurers to operate normally in the UK post-Brexit and is undertaking a review of its authorising and supervision policies for international firms.
“The foundation of the Bank of England’s approach is the presumption that there will continue to be a high degree of supervisory cooperation between the UK and the EU. On this basis, EEA banks and insurers may (if they are not conducting material retail business) apply for authorisation to operate as a branch in the UK.
There are expected to be no implications of the proposed policy for the current operations of banks and insurers from non-EEA countries such as the US, Switzerland and Japan,” the bank said in a statement on the 20th December.
It said its approach is rooted in the “substantial evidence” that openness supports economic dynamism through a range of channels, raising growth and boosting living standards.
“Keeping the UK’s financial system open to foreign institutions is in the best interests of the UK, EU and global economies,” it said.
“Having a large financial sector brings substantial benefits to the UK. A deep and liquid financial market lowers the cost of finance to households and businesses.”
Dave Matcham, chief executive of the International Underwriting Association, welcomed news of the UK regulator’s intention to accommodate branches of EU insurers post-Brexit.
He said: “This is a very welcome announcement for many IUA members. The London company market has a significant number of firms operating as branches of parent companies located elsewhere in the EU. Our recent London Company Market Statistics Report estimates premium totalling £7.383 billion was generated by such business models in 2016.
“The move to enable this business to continue without any unnecessary, additional regulatory barriers post-Brexit is a very positive step and demonstrates great confidence in our sector.”
Lloyd’s also welcomed the publication by the Bank of England of its approach to the supervision of international insurers, and to branch authorisation and supervision.
Bruce Carnegie-Brown, chairman of Lloyd’s, said: “We welcome the government’s proactive approach to the supervision of international insurers, which, if applied, would help the continuity of business through the post-Brexit implementation period. This will provide greater certainty to insurers and UK policyholders, reinforcing London’s position as the world’s leading insurance centre. This is a very positive development, which will contribute to financial stability to the benefit of all parties in the insurance sector.”
GIC Re gets green light for new Lloyd’s syndicate
The General Insurance Corporation of India (GIC Re) has received “in principle” approval from the Lloyd’s Franchise Board to create a new syndicate, its managing agency Pembroke has confirmed.
Earlier this year, the Indian reinsurer had revealed its plan to expand its presence in select overseas markets, and establish a syndicate at Lloyd’s of London which will write a variety of classes of business from different parts of the world.
Pembroke, a division of Ironshore, is a specialist provider of Lloyd’s managing agency services to third parties. The company said that the combination of Pembroke’s specialty lines underwriting capability and GIC Re’s regional expertise will create mutually beneficial development opportunities for GIC Re, Pembroke and other participants in the Lloyd’s market.
“The Syndicate formation marks an inflexion point in our corporate history through provision of global business access in collaboration with a globally respected brand and will help us broaden diversification and leverage deployment of capital resources,” said Alice Vaidyan, chairman and managing director of GIC Re.
“Due to the significant growth of the Indian (re)insurance market, our portfolio has become more India-centric over the past few years. The Lloyd’s platform will help us access quality international business and provide us with enhanced balance and diversity.”
Chris Brown, strategic partnership director at Pembroke Managing Agency, added: “GIC Re will be the first Syndicate of its kind backed solely by aligned capital from an Indian reinsurance group. We are excited by this opportunity to develop business for the Lloyd’s market by harnessing Lloyd’s expertise with the unique distribution advantage offered by working with a powerful local partner.”
GIC Re is ranked 12th amongst the top 40 global reinsurers, as published by Standard & Poor’s in September 2017. It has an established footprint in the Afro Asian region, where it has been operating for over 45 years.
Travelers creates new EU subsidiary in Brexit move
Property/casualty insurer Travelers Europe is to apply to the Central Bank of Ireland for authorisation of a new, wholly owned insurance subsidiary incorporated in the Republic of Ireland, according to a statement issued on the 19th December.
Based in Dublin, the new subsidiary will enable Travelers to continue to serve its customers and broking partners in Ireland and across Europe seamlessly when the UK exits the European Union, as currently planned in March 2019.
“Ireland is a natural choice for Travelers to establish its EU-based subsidiary,” said Matthew Wilson, CEO of Travelers Europe. “We have been present in the Irish general insurance market for more than 20 years, and our new company will utilise our existing branch resources. We look forward to deepening our relationships with brokers, customers and regulators in Ireland, as well as continuing to serve our policyholders who have assets throughout Europe.”
The establishment of a new subsidiary in Ireland is subject to receiving all necessary regulatory approvals and to future regulatory developments.
The company stated that this proposed plan will not affect Travelers’ significant UK-based operations, comprising its general insurance business (Travelers Insurance Company Limited) and Lloyd’s syndicate, which will continue to operate under existing UK licences.
Navigators buys Belgian specialty insurers in Europe push
Global specialty insurance holding The Navigators Group has entered into a share purchase agreement for the acquisition of all of the shares of Antwerp-based Assurances Continentales – Continentale Verzekeringen NV (ASCO) and Bracht, Deckers & Mackelbert NV (BDM).
The proposed acquisition is part of Navigators’ strategy of expanding its specialty insurance expertise to more brokers and insureds across Europe, according to a company statement.
As aggregate consideration for the acquisition of ASCO and BDM, Navigators will pay €35 million in cash at the closing of the transaction.
ASCO is a specialty insurance company offering marine and property and casualty insurance.
BDM is an insurance underwriting agency which underwrites risk coverage in niche markets on behalf of ASCO and a number of major international insurers.
Additionally, as part of the transaction, Navigators will acquire all the shares of Canal Re SA, a Luxembourg reinsurance company which is a wholly-owned subsidiary of ASCO. The acquisition reinforces Navigators’ presence in the European Union’s single market, enabling Navigators to best serve its European clients after Brexit, and also provides opportunity for BDM and ASCO to take their expertise to a wider European audience.
The transaction is subject regulatory approval and is anticipated to close in the first half of 2018.
Pioneer’s Syndicate 1980 starts underwriting 1/1
Pioneer Underwriters, the underwriting group within Minova Insurance Holdings received approval from Lloyd’s for Syndicate 1980 to commence underwriting business attaching on or after the 1st January 2018.
Pioneer Syndicate 1980 will have a gross premium income of £278 million and will underwrite a broad cross-section of business including property, casualty, marine and energy. The Syndicate will be managed by Asta.
“The launch of the Syndicate 1980 is an important next step in the execution of Pioneer’s long-term strategic objectives and supports development of the business,” said Darren Doherty, CEO Pioneer Underwriters. “We have built a robust operating platform to underpin delivery of our technical and specialist underwriting expertise to our clients and capital providers.”
Pioneer Underwriters launched in April 2011 and trades as both a risk carrier and managing general agent/managing general underwriter (MGA/MGU) with full delegated underwriting authority in over 120 Lloyd’s class codes using a pre-analysed broker portfolio as its foundation.
Pioneer operates with the backing of Liberty Syndicate 4472 and manages circa £350 million of premium via 22 underwriting teams across property, marine and casualty classes.
Pioneer underwrites via over 25 facilities operating via Lloyd’s and non-Lloyd’s platforms. Pioneer has delegated authority arrangements with 29 markets, terms of business agreements (TOBA’s) with 130 London and overseas brokers and nationwide distribution capability across the US.