Hiscox offers cyber ILW capacity based on PCS trigger

Hiscox Re & ILS, the reinsurance and third-party capital management unit of global re/insurer Hiscox, has announced that it is to offer a new cyber industry-loss warranty (ILW) product, which will provide aggregate limits based on the use of a PCS industry loss trigger for global cyber underwriting losses.

The cyber ILW will be an aggregate coverage, responding to a build-up of cyber losses throughout the year, which the company notes will assist both insurance and reinsurance firms in their need to address the uncertainty around cyber tail risks.

As a result, Hiscox Re & ILS said that the cyber ILW can provide “an effective hedging mechanism for cyber underwriters.”

The company notes that while industry loss warrants (ILWs) are commonplace within the property reinsurance and retrocession markets, this offering from Hiscox Re & ILS is the first that responds specifically to global cyber insurance losses.

Mike Krefta, Hiscox Re & ILS CEO, commented on the product launch, “We have big ambitions in cyber and our new cyber ILW is another important step forward in developing that market. We believe innovations like this demonstrate our technical abilities and willingness to be a market leader in emerging risks.”

The cyber ILW from Hiscox Re & ILS will utilise the PCS Global Cyber Index, which was launched by Property Claim Services (PCS) in the third-quarter of 2017.

Hiscox Re & ILS noted the importance of a third-party source of data for a cyber ILW trigger, saying that, “an objective decision-maker on the size of the market loss” is required, as the product enables insurance and reinsurance entities with cyber exposures to take out coverage based on the loss experience of the industry, rather than a specific re/insurer.

Hiscox Re & ILS sees the new cyber ILW offering a part of its “drive towards product innovation and bespoke client solutions.”

Additionally, Hiscox is leveraging its ILS funds and their third-party institutional investors in many of its new product launches, as it recognises the efficiency of this risk capital and also the investors desire for new sources of risk.

Artemis spoke to Tom Johansmeyer, Co-Head of PCS, about this new development.

He commented, “We’re excited to work with the Hiscox team to make cyber risk more accessible via the ILW market. Based on the loss activity reported last year through the PCS Global Cyber index, we identified some key advantages to ILW trading over traditional approaches, particularly potential settlement speed for aggregate ILWs based on the PCS reporting process.

“For the next few years in particular, the ILW market could provide unique opportunities.”