CEO warns on true risk of cyber cover
While many re/insurers see cyber risk
as an opportunity to grow in the
current soft market, Swiss Re’s CEO Christian
Mumenthaler suggested that the excitement
may be inappropriate and that governments
need to prepare for extreme events.
The total written premium of the cyber market
globally has recently been estimated at $2.5 billion,
but it is growing fast. Allianz believes that the
market will increase to $20 billion by 2025.
“I am very sceptical of today’s cyber
policies,” Mumenthaler told Monte Carlo Today.
“If you cover everything related to cyber, you
are taking a huge aggregation risk, and this risk
is very significant.”
In an increasingly digital world, with cars
and homes connecting through the internet,
the risk of a large cyber attack hitting the
insurance industry may be growing.
A massive ransomware worm dubbed
WannaCry hit several organisations such as
the UK’s National Health Service and Spain’s
telecoms firm Telefonica in 2017.
In June, many organisations in
Europe and the US were crippled by a
ransomware attack known as Petya.
“What we have seen so far is not a good
basis on which to predict future developments,”
“The deeper you go into the subject, talking
to experts, governments and the community,
the more you realise the significance of the
threat cyber represents. Even with good
security measures in place, if everyone moves
data into the cloud and uses the same systems,
we as a society are making ourselves inherently
Some experts believe that hackers may be able
to ‘tip over’ the internet in less than three years.
“The best cyber experts say that big events
can happen at any time and true full defence is
not possible. It’s similar to the nuclear situation,
where one hopes that no-one will attack, but
not because they can’t do it.
“In a bleak scenario like that you wouldn’t
want to have large aggregation risk,”
In order to reduce the potential risk of a
big event, insurers may have to take a cautious
approach to cyber demand. Mumenthaler
suggested that underwriters can create products
for certain types of risk, for example when a
certain group of companies is concerned, or for
sub-risks where one can exclude aggregation risk
across the board.
Governments may need to work with the
private sector to determine how to handle the
largest cyber risk in a similar way to pandemics,
terrorism, or nuclear risks.
“We need governments for extreme
events,” Mumenthaler said. “If we have the
breakdown of a cloud service provider which
will affect a large number of businesses, I
struggle to see how the private sector will be
able to cover it.” n
Reinsurers will need to ponder options if Irma becomes capital event
If Hurricane Irma becomes a capital event
for reinsurers they will have to mull over
options to replenish the capital, S&P executives
told Monte Carlo Today.
Hurricane Irma is expected to cause much
higher insured losses than Hurricane Harvey
and may result in a capital event for re/insurers,
according to the ratings agency. A capital event
would be defined as a reduction of 10 percent
of total capital.
“If companies cannot restore in line with
our base case assumption, then we may take
negative rating actions,” said Johannes Bender,
S&P director insurance ratings.
But reinsurers may not necessarily need to
raise additional capital.
“Companies may have strong competitive
positions and may be able to replenish capital
over the next year or two just through earnings,”
said S&P senior director Taoufik Gharib.
Bender noted that whether reinsurers need
to raise capital will also depend on a company’s
risk capital strategy and the capital levels it
wants to achieve.
Most of the companies give out boundaries
for the capital levels they want to maintain and
feel comfortable with. If a reinsurer decided for
a capital increase, Bender noted, most of the
companies have ample access to funding. They
can raise core shareholder equity, they could
issue hybrid debt or other debt, or they can also
play with their dividend policy, he said.
The options market players have and the
price they may have to pay will depend on how
comfortable investors feel about the loss. If the
loss was not contemplated by the models, it might
be more difficult to attract investors, Gharib
Strong capitalisation of the sector is
expected to help reduce the impact, but Irma is
likely to stress-test not only the re/insurers but
also the staying power of third party capital.
If investors are comfortable with the loss as
it is kept within the expectations, alternative
Johannes Bender Taoufik Gharib
capital is likely to stick around, according to
Bender added: “The current expectation is
that this event will not wash out the alternative
capital entirely because it is still an interesting
However, investors will probably request higher
returns given the effects of Irma and potentially the
earthquake in Mexico, Gharib noted. n
10 | MONTE CARLO TODAY | DAY 3: Tuesday September 12 2017 www.intelligentinsurer.com | www.bermudareinsurancemagazine.com