Captive International
NEWS www.captiveinternational.com
30
Cyber insurance could be credit-negative
for insurers
CYBER INSURANCE brings opportunities
for business growth and diversification
for some insurers, but could be a credit-negative
AM Best assigns rating to R&Q subsidiary for European captives
RATINGS AGENCY AM Best has
assigned a financial strength rating of
A- (Excellent) to R&Q Insurance (Malta)
(RQIM), a run-off specialist for European
non-life re/insurers and captives.
The outlook of RQIM is stable, and
reflects its balance sheet strength,
which AM Best categorises as strong,
as well as its adequate operating
performance, limited business profile
and appropriate enterprise risk
management.
RQIM has generated an adequate
operating performance over the past
four years (2013 to 2016), with an
average return on equity of 5.3 percent.
Although the ratings agency expects
the company to report a marginal profit
in 2017, the expansion of programme
business is expected to strengthen its
prospective profitability. The company’s
risk-adjusted capitalisation is likely to
remain supportive of its strong balance
sheet strength assessment, which also
benefits from a low level of financial
leverage and is offset by an increasing
dependence on reinsurance.
Commenting on this development,
R&Q CEO Ken Randall said: “We are
delighted that AM Best has recognised
the quality of R&Q’s balance sheet, our
group risk and operational management
and our new, strategy focused around
two core offerings: legacy acquisitions
and programme management.
“The A- rating for our European
insurance company, RQIM, is an
important step in our new strategy and
gives our customers and counterparties
even greater confidence in our ability to
meet their needs in providing solutions
to exiting run-off business and in being
their programme underwriting partner
of choice.” l
“We are delighted that
AM Best has recognised
the quality of R&Q’s
balance sheet.”
Ken Randall
for others given the potential to
generate larger future losses, according
to Fitch Ratings.
In response to the sharp increase in
data breaches in recent years, property–
casualty (P&C) insurers’ efforts to offer
cyber risk coverage for their policyholders
have advanced significantly, and
insurers’ cyber risk offerings are likely to
expand further in 2018.
The number of US data breaches
increased 44.7 percent in 2017,
according to the non-profit Identity
Theft Resource Center and identity
management and data risk management
solutions provider Cyber Scout. Such
a large one-year jump in incident
frequency, combined with numerous
higher profile and more severe events in
2017 such as the Equifax breach and the
Wannacry and NotPetya ransomware
attacks, highlights how challenging
it is for insurers to underwrite and
actuarially price cyber exposures in a
rapidly evolving environment, according
to Fitch.
Cyber insurance is currently a
profitable niche segment for a number
of insurers but as the market grows
and becomes more competitive this
opportunity may erode, Fitch believes.
Also, newer market entrants may be
more vulnerable to underpricing risks
and exposure to large future losses as
they may lack the unique underwriting
and claims expertise needed for cyber
insurance.
Demand for cyber insurance is likely
to grow. Risk surveys such as the
recent Allianz Risk Barometer 2018
report continue to list cyber as a top-
10 business risk. At the same time, the
Council of Insurance Agents & Brokers’
December 2017 Cyber Insurance Market
Watch Survey indicates that only 31
percent of respondents’ clients had
purchased some form of cyber coverage.
Further, a 2018 report by Lloyd’s and
AIR Worldwide estimates that a cyber
event that knocks out a major US cloud
provider for several days could cause
$6.9 billion to $14.7 billion in damages,
with only about 20 percent of those
losses insured.
Demand for cyber insurance will also
be spurred by increased regulation.
This year, the European General Data
Protection Regulation (GDPR) will
introduce more stringent notification
requirements for data breaches. Such
regulations not only foster awareness
of cyber risks but also increase the
potential for fines and penalties when
data breaches and other cyber incidents
occur.
More businesses are seeking specific
standalone cyber insurance policies to
cover a wider variety of cyber exposures.
For example, an increase in critical
data theft and ransomware attacks is
leading to greater interest in first-party
business interruption and property
damage coverage.
Similarly, a rise in public company
shareholder suits from cyber incidents
that have generated large losses and
reputational damage is leading to
greater demand for cyber coverage
specific to directors’ and officers’
liability policies. l
istockphoto / piranka