The reinsurance market must communicate with policyholders what is excluded from cyber policies in the event of a global cyber event, Dan Glaser, president and chief executive of MMC has said.
Speaking on a panel debate yesterday at the Monte Carlo Rendez-Vous, Glaser called on carriers to be more transparent about how policies would respond to an international cyber attack.
“My hope is if there is a world-wide cyber collapse, the industry responds and exclusions are not invoked to avoid paying them,” Glaser said.
“My fear is the bigger the loss, the more likely the industry will be shamed by its fragmented reaction and payment of claims,” he added.
Glaser said the (re)insurance industry must recognise a global cyber event – whether state backed or criminal – as a potential peril.
He said it was imperative that players from across the market carry out scenario planning on how the industry would respond.
“I would like to know in advance how it would be treated,” he said.
The CEO of French reinsurance giant Denis Kessler said that a cyber global collapse is the only event that could happen that the industry has not been able to model.
“A global cyber event is the only thing that could impact the market in the same way as Andrew did in 1992 or the World Trade Centre in 2001,” Kessler said.
Separately, Kessler said “he could not explain” why the losses experienced by the market last year had not had a more significant impact on the rating environment.
“There were pockets of rate increases but they were extremely subdued,” Kessler added.
He blamed the continued presence of ILS investors in the reinsurance market for the muted rate increases.
“We expected ILS to be shy in reloading but they acted to the contrary,” he said.
“The influx of third party capital – that was a big surprise,” Kessler added.
Also speaking on the panel, group CEO of Swiss Re Christian Mumenthaler said the pool of alternative capital in the market has proved it is “here to stay”.
His comments were echoed by PartnerRe president and CEO Emmanuel Clarke who said
“It’s no secret there’s more supply than demand in this environment”.
But while he said there is a wall of capital “waiting at the side lines” to enter the reinsurance market, he said there was also a wall of new demand in the form of new products that the industry can create.
The continued presence of ILS in the reinsurance market has proved to be a talking point of the Monte Carlo Rendez-Vous this year.
AIG CEO Brian Duperreault said there is major scope for the US giant to build products for ILS market.
The AIG’s takeover in January of Validus gave the US carrier access to AlphaCat – its ILS fund manager.
But that is not the only transformation in the ILS market, which has witnessed a number of developments over the past 12 months.
At the end of August, Markel moved to become the largest ILS fund manager by agreeing to buy Nephila, which has over $12bn in assets under management.
Twinned with its existing ILS vehicle CatCo, the deal will bring the total assets controlled by Markel to $19bn – with the Richmond, Virginia-headquartered firm controlling around a fifth of the global ILS space.
In the UK, new legislation since 28 November 2017 has provided a tax-friendly approach for
on-shore risk transactions that are structured through an ILS framework.
The first transaction under the new regime incepted at 1.1 was a $72mn quota share by Lloyd’s syndicate Neon.