PCS launches Global Cyber Index service for risk transfer industry

by Artemis on September 5, 2017

Property Claim Services (PCS) has announced the launch of PCS Global Cyber, a new loss aggregation service that offers industry loss estimates for individual affirmative international cyber events and can provide an index trigger for cyber risk transfer contracts, such as ILW’s or catastrophe bonds.

Cyber riskPCS, a Verisk Analytics company, has developed PCS Global Cyber with reinsurance broker Capsicum Re, and the platform is the latest solution from PCS outside of the property catastrophe space.

The new service provides industry loss estimates for global cyber events that have an insured loss of $20 million or higher, industry wide, and is in response to increased demand from the insurance and reinsurance industry for an independent, third-party view of worldwide cyber industry loss estimates.

Tom Johansmeyer, Assistant Vice President (AVP), PCS, said; “Like PCS Global Marine and Energy, our latest entry into the specialty lines—PCS Global Cyber—benefited from the direct involvement of many players across the market. Over the past year, we’ve listened closely to the insurers and reinsurers pioneering cyber coverage and included their feedback to ensure we would bring a useful and reliable loss aggregation platform to market.”

PCS Global Cyber is designed to provide insurers and reinsurers, among other stakeholders, to obtain an unbiased view of the insurance industry loss for large non-elemental events, globally. Furthermore, PCS explains that users can utilise the solution to facilitate both traditional and alternative reinsurance risk-transfer transactions.

“We believe that the launch of this index could help grow an ILW market that could provide access to much-needed capital markets capacity and increase retrocessional activity—two key factors in growing the overall cyber insurance market worldwide.

“We’re happy to provide the help the industry has sought for so long, and we look forward to working with our clients further so they can maximize their use of the PCS Global Cyber Index. We appreciate the support provided by the team at Capsicum Re. Being able to work shoulder to shoulder with them contributed to the success of this effort,” continued Johansmeyer.

According to PCS, the Global Cyber Index already has estimations for a number of events, which includes the Southwest system outage and a number of substantial breaches from 2013. PCS notes that the full historical database, as well as the process for developing future estimates, is now completed and ready to be used by the re/insurance and broader risk transfer industry.

Director of PCS Operations, Ted Gregory, added; “The PCS team sees the importance of growing industry loss aggregation beyond property-catastrophe. And through our collaboration with the specialty lines community, we’ve put together a methodology that not only meets the needs of this sector but that is flexible enough to be adapted from one class of business to another. Our earlier investment in PCS Global Marine and Energy was crucial to the rapid launch of PCS Global Cyber.

“As with any event, we’ll adhere to our defined methodology to arrive at consistent, independent, and reliable industry loss estimates.”

Partner at Capsicum Re, which helped develop PCS Global Cyber, Ian Newman, said; “We developed the global cyber loss index with PCS based on specific feedback from the market, as well as the trends our team has identified in structuring and facilitating risk-transfer transactions. It’s clear that there’s appetite for ILW trading from both buyers and sellers. The emergence of a robust cyber ILW market will be crucial to the overall growth of this class of business, as prudent risk transfer can maximize the availability of underwriting capital, and will ultimately help bring original risks to market.”

So far, the international insurance and reinsurance markets have welcomed the launch of PCS Global Cyber, with PCS noting strong support across the industry.

Global Head of Cyber Risk at TransRe, Kara Owens, commented on the new solution; “Recent widespread cyber attacks have caused operational and financial difficulties for a wide range of companies. As cyber risk continues to evolve and exposure to global cyber events grows, clients now actively seek risk transfer solutions to address these growing threats. The insurance and reinsurance industry will need innovative solutions to provide the necessary capacity and coverage. We applaud PCS for taking the initiative to research viable solutions and bring additional and consolidated data to the market to help our industry address this important exposure for our clients.”

Clive O’Connell, Partner and Head of Insurance and Reinsurance at McCarthy Denning, added; “This is an important step both for those needing protection and for ILS investors. The enabling of products that provide what purchasers need coupled with creating diverse investment opportunities is a significant step forward.”

While Head of Global Origination at Securis Investment Partners, Neil Strong, said; “We welcome the launch of the PCS Global Cyber index. It will enable and assist ILS managers to continue the development, knowledge, and understanding of a complex insurance risk. This may be a preferred route to access and invest in diversifying but fledgling markets such as cyber insurance. To date, the ILS market has not followed the Lloyd’s market in this area, preferring to continue its analysis, but additional comfort can be taken by the professionalism and expertise that PCS brings to the table.”

And Tim Tetlow, Partner and Chief Operating Officer (COO) of Hudson Structured Capital Management, commented; “The expansion of PCS indices in recent years is a valuable contribution to the development of more orderly liquid markets. Their latest addition in cyber is important given the projected growth in this line of business.”

The availability of an index for cyber insurance market losses could stimulate retrocessional trading, using industry loss warranties (ILW’s) and other instruments and may even make it possible for markets to sponsor cyber catastrophe bonds, as a way to lay off cyber risk to the ILS and capital markets.

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