LONDON–(BUSINESS WIRE)–A growing cyber book could present a risk to a (re)insurer’s financial strength if not managed appropriately. While cyber risk has gained significant attention in recent years following a number of high profile hacks and breaches, the aggregate loss potential of cyber and its implications for the London insurance market are less clear because insurers have not yet experienced a systemic cyber event from which they can draw robust conclusions.
In a new Best’s Market Segment Report, “Scrutiny of Management Approach Increases as London Cyber Insurance Market Grows”, AM Best notes that, as one of the world’s leading hubs for insurance expertise and innovation, the London market plays a fundamental role as a capacity and knowledge provider for complex cyber insurance and reinsurance. Valeria Ermakova, associate director, analytics, AM Best Europe Rating Services, said, “With its underwriters participating in this segment since the late 1990s, the London market benefits from a unique pool of talent, as well as the presence of an array of specialised insurance law firms, advisers and loss modelling companies.”
Demand for cyber insurance is growing as the increased interconnectedness of infrastructure is changing customer needs. The ability to provide a whole range of insurance products, including innovative cyber solutions, helps carriers retain customers and remain competitive, and in turn benefits their business profiles. However, the potential for high-severity aggregate losses and the lack of sufficient claims history to support pricing and reserving decisions mean that cyber is a high-risk line of business. Additionally, the lack of an established legal framework for cyber liabilities means that policies can be open to interpretation.
High-risk business lines bring with them potential for volatile performance and consequent adverse effects on the financial stability of an insurer. In that context, underwriting expertise and the approach of senior management to these products become crucially important considerations.
Catherine Thomas, senior director, analytics, AM Best Europe Rating Services, adds: “For those insurers with sizeable or rapidly growing cyber books, AM Best will discuss the management’s philosophy towards this business line, as well as the company’s pricing and data quality. AM Best may look at whether the company has accumulated a credible amount of claims data relative to the risks and limits it accepts, and whether this is complemented by any external data sets. The ability of a company’s management to respond proactively to evolving market conditions, such as litigation trends or regulatory developments, and to support its performance expectations, is particularly important.”
To access a complimentary copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=294942.
To view a video interview with AM Best Europe Rating Services Associate Director Valeria Ermakova, on this report, please visit http://www.ambest.com/v.asp?v=cyber1119.
AM Best is a global credit rating agency, news publisher and data provider specialising in the insurance industry. The company does business in more than 100 countries. Headquartered in Oldwick, NJ, AM Best has offices in cities around the world, including London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.
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Associate Director, Analytics
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Catherine Thomas, CFA
Senior Director, Analytics
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Director, Market Development & Communications
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