The industry’s understanding of its full loss exposures to major cyber events took a significant step forward this week with the launch of a new cat cyber loss index that may eventually lead to greater reinsurance and retro capacity being devoted to the fast expanding class.
Property Claim Services (PCS) – whose index of property cat losses is routinely used as trigger events for industry loss warranties (ILWs) and catastrophe bonds – has today unveiled a catastrophe component and enhancement of their PCS Global Cyber service.
Tom Johansmeyer, the co-head of PCS, predicted the launch may take the market one step closer to what would be a pioneering development, the first-ever cyber ILW.
“The launch of cyber catastrophe loss estimates provides another mechanism for fuelling industry growth through ILW trading, especially when it comes to accessing capital markets capacity,” he explained.
It is also a further step to encouraging more traditional indemnity reinsurance excess of loss (XoL) cyber capacity which, at present, is relatively scarce in part because of the current lack of authority over loss calculation and quantification.
Presently, most reinsurance capacity is only available on a quota share basis with just a small number of providers consistently quoting for XoL cover.
Aritra Chatterjee, a leading cyber reinsurance underwriter who co-launched the cyber MGA EnvelopRisk earlier this year, commented: “The industry has so far struggled with converging to a standard cyber event definition, which is often difficult to achieve without an independent third-party opining on what constitutes an event and the quantum of it”.
The former Hannover Re underwriter added: “With PCS filling the gap, several possible structures can be offered in the reinsurance market. We are excited about this opportunity.”
PCS said today that users of its existing PCS Global Cyber service will now be able to track loss estimates for 13 affirmative events with seven coming since the launch of the service a year ago. It also includes an industry cyber catastrophe loss for Petya/NotPetya, the industry’s largest ever cyber event.
Johansmeyer added: “There’s no one correct approach to managing risk and capital in the face of a growing cyber threat. The latest iteration of PCS Global Cyber helps risk bearers address any silent exposure they may have lurking in their portfolios while also taking an active approach to the cyber business they purposely write.”
He concluded: “We believe that the prevalence of affirmative or silent cyber risk will fluctuate in the years to come as the market evolves and losses occur. So, rather than take a view that one approach will emerge, the PCS team has worked closely with the market to develop a loss index suite that will serve the market as cyber continues to evolve.”