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Cyber ILS need to be repeatable, scalable & sensible: Johansmeyer, PCS


The increasingly sophisticated participants within the insurance-linked securities (ILS) market aren’t going to lap up just any cyber exposure that comes their way, the deals have to make sense, according to Tom Johansmeyer, Head of PCS.

Tom Johansmeyer, PCSCyber risk is a rapidly growing exposure which can accumulate in ways that suggests the potential for truly significant losses in an increasingly interconnected and digitised world.

In light of just how vast the global exposure is, the ability of the primary insurance and traditional reinsurance sectors to cover cyber risk has been questioned constantly, with industry sentiment pointing to the need for the capital markets to get involved.

“There could certainly be a role for ILS in the cyber sector, but a few things have to change first,” explained Johansmeyer, in a recent interview with Artemis around cyber ILS. “For now, yes, I could see some ILS funds doing some market testing via ILWs to try to establish a retro market that they could grow over time.”

He continued to explain that while this might well be a nice way to invest in the long-term development of what has the potential to become an important diversifying risk, those seeking to engage the ILS community are often looking at it as though they’re doing the alternative sector a favour.

“Meanwhile, the ILS market has had to remind the cyber community that they aren’t just going to hoover up any cyber risk they can get their hands on. The deals have to make sense. The price has to fit and the structure needs to be clear and manageable,” said Johansmeyer.

As the cyber peril continues to compete further up the risk and capital supply chain with more established exposures, at a time when the well-understood catastrophe market is hardening, Johansmeyer questioned whether it makes sense for the ILS community to play a more meaningful role in the current environment.

“This isn’t to say that the ILS folks shouldn’t find ways to support the cyber market. I’ve been championing ILS entry into cyber for the better part of the past five years. I just think that repeatable, scalable, and sensible deals need to be brought to the ILS market.

“So far, we’ve seen some proof of concept stuff and headline-grabbers, but nothing that could be repeated and scaled into a real, sustainable, reliable market,” he continued.

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