PCS launches Cyber RLM, a data tool for large insured cyber risks

PCS, the provider of industry loss estimates and loss data globally, has launched its first non-loss reporting platform, Cyber RLM, which will provide users with unique insights into large insured cyber risks around the globe.

Containing data on many of the largest insured cyber exposures and programs, PCS Cyber RLM is designed to help markets improve their cyber risk and capital management.

Offering insights into the largest affirmative cyber risks in the global market, PCS Cyber RLM has already achieved significant adoption, according to Tom Johansmeyer, head of PCS.

“With the once rapid growth in the cyber re/insurance market effectively stalled, insurers are ceding large amounts of premium to reinsurance, and reinsurers have yet to gain access to a robust and reliable retrocession market,” Johansmeyer explained. “As a result, a somewhat limited capital base has become a constraint on expansion. Even before 2020, there were signs of a capacity crunch looming. While COVID- 19 and the year’s wave of ransomware attacks have certainly brought some challenges to the cyber insurance community, it was clear that structural issues in the market were already poised to limit the market’s potential.”

PCS Cyber RLM represents roughly one-third of the global market on a premium basis, containing a consolidated view of insurance programs with at least US$200 million in limit (and some smaller programs, as well).

It contains an estimated 250 cyber insurance programs of at least US$200 million and another roughly 500 programs of US$100–199 million.

Currently, a relatively small number of companies accounts for nearly half the insurance and reinsurance industry’s global affirmative cyber premium, PCS says.

Meaning that just a handful of losses from this cohort could “fundamentally change the year’s industrywide loss ratio and have pricing implications for years to come.”

“Three or four years ago, the market was concentrated enough that most of the larger players had a good sense of just about everything in the market. The growth that followed, however, resulted in a more fragmented view,” Ted Gregory, director of global PCS operations said. “As a result, more and more blind spots have emerged, making the development of a tool like PCS Cyber RLM crucial to understanding the broader market of one’s own book and loss experience. Our clients needed some help, and the entire PCS team is honored that the market has once again engaged PCS to get the job done.”

Alex Mican, senior product development director, further explained that PCS Cyber RLM can help to protect the market from getting squeezed too hard, potentially by making it easier to attract capital and retain more risk.

“Cyber insurers cede hefty amounts of premium to reinsurers, which has led to constraints on reinsurance capital. Improved analytical capabilities—enabled, for example, by PCS Cyber RLM—should introduce more room for finesse. Instead of relying exclusively on blunt-force quota shares, more insight into the global market could open a wider range of risk-transfer alternatives,” Mican said.

Johansmeyer added, “The insurance-linked securities community has had its eye on cyber risk for a while, but lately has been concerned that they’d be assuming risk that nobody wants to hold. It’s a fair concern, given how much premium is ceded out. We believe that PCS Cyber RLM will help retrocession writers get more comfortable with cyber risk, and we see this data set becoming part of a broader analytics ecosystem among original insurers, possibly helping them write more cyber and retain more of what they write. Not only would that alleviate pressure on the global risk and capital supply chain, it would also help insurers manage their own books more effectively—to include retaining more profitable business.”

Transparency on exposures and provision of data to assist in analysis and decision making is one way to stimulate deployment of reinsurance capital into the cyber space.

Still relatively small, given the size of the potential exposure, the cyber insurance market is set for growth and data tools such as PCS Cyber RLM can only help them to better understand their exposures, in order to access reinsurance capital more efficiently.

It can also only assist in getting ILS markets up to speed on cyber risk and helping them to understand whether cyber underwriting meets their risk appetites and needs for investment returns.