Sciemus to help alternative capital access emerging risks like cyber

by Artemis on March 29, 2016

Sciemus, a specialist risk modelling and analytics firm for insurance and reinsurance markets, as well as the space, power, solar, cyber, mining and wind sectors, has adjusted its strategy as it sees an opportunity to help alternative reinsurance capital and ILS access new & emerging risks, such as cyber.

Sciemus announced this morning the appointment of a new Chief Executive Officer and a new board of directors, as well as some details on the new strategic direction. Artemis followed up with the new Sciemus CEO for some additional detail.

Rick Welsh, who joined London-based Sciemus in 2015 to head up its cyber risk unit from AEGIS where he held the role of Global Head of Cyber, has been named the new Chief Executive Officer.

The new appointments to the Sciemus Board of Directors are Managing Partner of Noster Capital Jeremy Attard-Manché, Managing Partner of Hawkwood Capital Russell Duckworth, Sciemus Commercial Director Paul Tillett and Sciemus Operations Director Peter Niland.

But more intriguing is Sciemus’ change in strategic direction, which will see the firm look to use its risk modelling and analytics capabilities “more effectively to create additional revenue and refine the business model to meet changing market conditions.”

Traditionally Sciemus has worked with third-party insurance and reinsurance companies to help them better understand a niche range of risks, such as space, satellite, cyber, mining, power and energy, providing them with proprietary data, predictive modelling and consultancy to help them optimise underwriting performance and profitability.

Now Sciemus is clearly broadening its focus to assist the insurance-linked securities (ILS) manager and investor community, as well as providers of alternative capital, to better understand and access these types of risks.

New Sciemus CEO Rick Welsh commented on the developments and new strategic direction; “Sciemus has successfully provided world-leading analytics to a range of insurance partners and industries delivering invaluable insights into their businesses.

“Our analytics and computing professionals are using unique expertise, heritage and new technology to generate even more powerful data on complex and evolving risks. We now underwrite as a Lloyd’s MGA for cyber and power insurance and in conjunction with our strategic capital partners, we are planning to underwrite in other domains of expertise to create new approaches for underwriting via predictive modelling and exploit market dislocation in specialty insurance.”

Sciemus said it is working on refining and improving its existing underwriting models, in classes of business such as space, power and mining, as well as calibrating its risk models for renewable energy to “fuse with a range of new insurance and derivatives products.”

There is also a desire at Sciemus to shift further away from being a pure underwriting service company, by leveraging its Lloyd’s coverholder and managing general agent (MGA) status, which will see Sciemus underwriting more on behalf of external capital providers, some of which could be capital markets and ILS players.

Given Sciemus’ expertise in areas of the market such as space risks, cyber, power and energy, all of which are of interest to alternative reinsurance capital providers and ILS investors, the firm has a good opportunity to position itself as a conduit for new capital to access these more esoteric types of risk.

Renewable energy is an area of growing interest for ILS specialists, with some already deploying capital into complex weather derivative type transactions specifically designed for renewable energy generation providers.

Sciemus is also working on developing a schema for underwriting and modelling of cyber risks, as well as tools to dynamically monitor aggregate cyber exposure, across all classes of insurance and reinsurance. This development also targets creating a mechanism to better understand cyber risks, in order to provide a way for specific exposures to be quantified and structured into discrete packages, which will be extremely attractive to ILS players looking at cyber as a potential new class of business.

The new initiatives and products or services at Sciemus are now being provided as a Lloyd’s coverholder and managing general agent (MGA) with a team of in-house underwriters, allowing capital providers without the specific domain expertise in these risk classes to leverage Sciemus’ knowledge and resources to access this business.

Underwriting for third-party capital is expected to be a growing part of the Sciemus remit, with its unique domain knowledge in niche risks likely to attract ILS managers and others seeking new avenues of diversification.

Welsh continued; “By fusing our modelling expertise with in-house underwriting capability we will be able to enhance our revenue model and move away from what has historically been an underwriting services company. Our partnership with QinetiQ, the former research and development facility of the UK Ministry of Defence, will continue to play a key role in delivering our new strategy.”

Welsh told us that Sciemus is adapting its risk modelling and analytics capability in order to help ILS managers and investors to deploy alternative capital “to exploit dislocation in emerging risk and inefficiencies in traditional risk transfer.”

“In specialty markets, emerging risk is not adequately addressed, with insurance capital being deployed within inefficient “siloes” of traditional insurance. Risk is increasingly becoming more convergent and despite the relative overcapacity, it’s alternative risk capital that is proving more flexible and efficient,” Welsh told Artemis.

Continuing to explain; “Classes of insurance such as Cyber, Renewable Energy and Space have dynamic risk profiles that increasingly are showing signs of dislocation, where traditional insurance products do not meet the risk transfer requirements of clients. In that sense, alternative capital is proving more flexible in creating new distribution models and risk outlets where demand actually exceeds supply.

“For example, derivative and insurance products can underpin not only risk transfer solutions in Renewable Energy, but coupled with Sciemus’ modelling, can also be revenue accretive and capital efficient.”

And Welsh believes that Sciemus can help to open up new markets, for alternative capital and traditional reinsurance as well, through its approach, domain expertise and philosophy on modelling and underwriting emerging risks.

Cyber risk is just one area that Sciemus sees an opportunity to assist ILS and alternative capital to understand and access risk, with new capital seen as a way to expand coverage and penetrate more deeply into some of these emerging exposures.

“The flexibility of the alternative capital markets is highlighted in the approach to cyber insurance. If cyber risk can be articulated and modelled clearly and transparently, it can be packaged and presented to alternative capital markets in the same manner.

“With some of the more nimble reinsurers and alternative capital providers we are finding that previously insoluble risk transfer requirements can now be addressed more efficiently and effectively,” Welsh said.

Sciemus’ new strategic direction, to open up and grow new risk classes and help efficient capital to access them, in order to leverage ILS style risk transfer solutions in emerging risk classes, should be well-received by the market.

For many ILS managers and alternative capital players, building the expertise in-house to look seriously at risks such as cyber is difficult, given the investment required. By utilising a company such as Sciemus, which has the expertise, the risk modelling ability and also the Lloyd’s coverholder and MGA status to underwrite the risks, ILS managers could partner with Sciemus to expand into new and diversifying exposures.

Welsh is clearly excited about the prospect of using the expertise Sciemus has built up to help capital access risk. The end result could be a new approach to underwriting some of these emerging exposures, backed by data and risk modelling and efficient capital, which will be an exciting prospect for Sciemus and the capital providers it will work with.

“2016 will be one of the most exciting and transformative years in the history of Sciemus. Our success has been built upon providing exceptionally high quality data and modelling expertise for our underwriting clients, generating loss ratios that outperform the market.

“We believe that our modelling and expertise will result in data being used to predictively model emerging and complex risk that will transform how markets underwrite, transfer and securitise risk. We are building what we believe will be the next generation modelling and specialty insurance firm,” commented Welsh.

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