Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Swiss Re would love to develop cyber ILS market: Group CUO Léger


Speaking in Monte Carlo today, senior executives of Swiss Re discussed the cyber reinsurance market and said while they are cautious and currently don’t see it suiting the capital markets appetite right now, they are working on ways to develop cyber risk transfer options that could be transferred to ILS investors.

swiss-re-building-image“Price is important,” Swiss Re Group Chief Underwriting Officer Thierry Léger explained at a briefing the reinsurance company held at the Monte Carlo Rendez-vous today.

Léger explained that Swiss Re’s current cyber risk market share, across insurance and reinsurance, is estimated at around 6%.

It’s a line of business the reinsurer would like to grow and sees the need for more capacity in, but the speakers explained the price needs to be right before Swiss Re will grow significantly there.

Moses Ojeisekhoba, Chief Executive Officer, Reinsurance at Swiss Re, commented on the, “Significant premium growth that exists within the the cyber line of business and you look at where it started from three years ago to where it is today. So it tells you the industry is trying to provide some capacity.

“It is important that the exposure you take on is adequately understood, priced, and people pay for that exposure.”

Adding, “You’re not going to continue to provide exposure at prices that don’t make sense and it doesn’t cover the cost of the risks.”

Ojeisekhoba continued to explain that, Swiss Re sees cyber as an opportunity, but also an area that society needs the insurance and reinsurance market to step up.

“We are cautious because we still feel there is a need for a combination of correct forms, as well as the models to develop even further, before we simply run full-on into writing loads of this business, specifically, the systemic risk is one that concerns us.

“So we partner with a number of clients around the world but we stay cautious on the line like cyber.”

Going on to say that, “It’s a line of business that we will continue to write, we’ll continue to partner, we’ll continue to spend significant amounts of money to understand the risk, especially the accumulation component of that and figure out how to structure and make sense of products, how we partner with governments around the entire world, to ensure that we’re able to provide coverage for society much more broadly.

“But clearly, in the cyber-space, just in a way that is cautious overall.”

Léger said that cyber exposure is growing rapidly around the world and expected to continue doing so, citing almost 20% growth and saying that if that continues then “it gets to hundreds of billions.”

Clearly this could be an opportunity for capital markets to support reinsurers like Swiss Re in growing into cyber risks.

But Léger explained that it may not be right for capital markets investors, or insurance-linked securities (ILS), yet.

“They rely very heavily on models, they rely very heavily on objective triggers,” he explained.

Adding, “So at this point in time, I cannot see the capital markets would engage, and I am talking true capital markets.

“You would have to develop some sort of objective trigger and then obviously as an insured, you could face a considerable basis risk.”

He further explained that, “With the correlation, between whatever the trigger is you come up with and the real loss, that correlation might be very poor.”

Positively though, Léger added, “But definitely we are working on it, believe me.

“We would love to just be out there in the market, develop something, develop that market as well.

“Develop an appetite for it and help it move together with traditional sources of capacity.”

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