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‘Protecting society from an unprecedented cyberattack will require more than insurance’ – there’s a stark warning to be found in the Geneva Association’s (GA) new report into the global cyber protection gap. Speaking with Insurance Business, Darren Pain (pictured), GA cyber director and author of the report – ‘Cyber Risk Accumulation: Fully tackling the insurability challenge’ – highlighted the core issue at the heart of this insurability challenge.

“A longstanding problem in the cyber world is that the economic losses associated with a major cyber incident are potentially catastrophic,” he said. “The worry for insurers and reinsurers is that, because they underwrite the cyber risks of households and firms, they may well be on the end of a concentration of those risks within their balance sheets.

“They worry quite a lot about what their capacity is to provide that level of protection to households and firms, given that their balance sheets are ultimately constrained in terms of how much capital can allocate to cyber risks.”

The limited power of cyber risk models

Over time, he said, the sector has become better at analysing cyber risks as more incidents generate more data, and advancements are made in combining forensic detail with more advanced risk models. However, he noted that a key takeaway from the GA’s report is that cyber models do remain fundamentally immature – with results still quite volatile and inconsistent.

Pain’s thesis is that simply having more data and information is not the silver bullet to protecting against cyber risk. It’s certainly part of the solution, he said, and it’s clear that better risk quantification is needed in cyber. However, there are certain elements of cyber that are beyond the reach of probabilistic reasoning. It’s not fatalistic to acknowledge that there are limits to what cyber risk models can do and that it’s a “fool’s errand” to search for the perfect model.

“[Our message] is that models are definitely needed but advances in modelling alone won’t guarantee an increase in risk-absorbing capacity,” he said. “So, we look to other ways and recognise the need to think about a multi-stakeholder approach in order to get our arms around this insurability challenge.”

How to meet the ‘insurability challenge’ head on

To do this means looking beyond just the insurance and reinsurance sectors, he said, and the GA’s report has highlighted three additional key considerations. The first is the need to promote greater capital market involvement in cyber risk transfer. Cyber needs to attract a broader class of investors who are interested in taking on peak cyber risks, particularly given that capital markets are much deeper and are more liquid than reinsurance or insurance.

“Secondly, there are some elements of cyber exposure that extend well beyond the reach and knowledge of re/insurance,” he said. “ So I think we really need to tap into mechanisms that allow us to cooperate more with either government agencies or technology companies themselves, who ultimately have the most insight on the threats and vulnerabilities out there.”

The third consideration pinpointed by the GA is the need to incentivise IT security providers to take more responsibility for some of the hidden costs incurred by their users. Pain believes there is scope for enhanced liability for some hardware and software providers, encouraging these companies to build more cyber safeguards into their products and services – and so enhance cybersecurity, both among themselves but also across their customer base.

“Those are our three main concrete [takeaways] but I think, ultimately, the elephant in the room is that if you did all that… to my mind at least, you still have to fundamentally address the role that government has to play as a potential financial backstop against catastrophic cyber losses. We have plenty of examples of such arrangements for other types of perils and I think cyber is another candidate area. Even if it’s just to take away the extreme peak risks, in doing so we may well encourage more of the private sector to take on additional cyber exposure. So I think we do really need to engage in that debate with policymakers.”

Public-private partnership – a critical tool in bridging the cyber protection gap

Though estimates of the global aggregate cyber protection gap may differ from source to source, the multi-trillion-dollar figures being suggested reveal the scope of the challenge at hand. Pain noted that he does not believe the insurance and reinsurance sectors alone can close the protection gap and that a more collective approach is required.

The conceptual case for a form of a public-private partnership is pretty compelling, Pain said, as he believes that cutting the size of catastrophic losses faced by private insurers and reinsurers could ultimately attract more risk-absorbing capacity into the sector. In addition, increased cyber insurance has the potential to encourage improved cyber hygiene among the populace. But in order for reinsurance and insurance to fulfil its potential cyber governance role, the tail risk of extreme cyber losses somehow needs to be curtailed and a government backstop may be a means to support that.

“I don’t think there’s a consensus yet in the market,” he said. “Some risk carriers are still a bit nervous about government intervention within cyber insurance … In large part perhaps, thinking about what unintended consequences might arise.

“Most notably, people wonder whether a backstop might encourage lax cybersecurity postures where people don’t invest in cyber hygiene because they assume the government will pick up the tab. Likewise, I think some insurance market participants worry that a government facility might come with a mandate to take on some cyber exposures which remain well outside their risk appetite.”

While acknowledging those concerns, however, Pain emphasised that all of these issues apply to public-private partnerships already established to deal with other perils. There are clear lessons from both the successes and the challenges faced by these other schemes, he said, and how they operate. For him, the heart of the matter is more about design and implementation, rather than any conceptual misgivings.

“Unless we do something to cut the tail of the aggregate probability distribution for cyber losses, I think we won’t get a significant increase in capacity from the private sector,” he said. “And so, I think that’s where we have to go… Because in the end, taxpayers may well find themselves absorbing the losses that could accompany a major cyber catastrophe.

“To my mind, it’s better to get something in place that leads you to a more optimal risk-sharing arrangement ex-ante, rather than scrambling around in the midst of a massive cyber event trying to pick up the pieces. I think we should be ahead of the game as a sector and try to engage with policyholders. But it’s also about taking a multi-stakeholder approach and reaching out to the other players [in the ecosystem] that can help us build a more sustainable cyber insurance market.”

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Lancashire Holdings has published its trading statement for the period up to Sept. 30, detailing its financial performance.

In the reinsurance segment, the expansion of casualty reinsurance operations was a notable driver of growth. Specialty reinsurance continued to capture new business due to a favourable rating climate. Property reinsurance classes also saw considerable rate enhancements. The Rate on Line Index (RPI) stood at 123% for this segment.

For the insurance segment, property insurance remained the dominant growth force, spurred by marked rate increases in direct and facultative property classes and the progressive development of the property construction portfolio.

In specialty insurance, there was an uptick in premiums in the political risk division, while energy and marine sectors saw growth leveraging positive market dynamics. Aviation insurance recorded robust RPIs, although the main renewal phase is anticipated in the final quarter. The segment’s RPI reached 112%.

The implementation of IFRS 17 introduced insurance revenue as a new financial metric. Considering this new standard, the insurance revenue climbed by $200.9 million, a 22.1% increase in the first three quarters of 2023 compared to the same period the previous year. The factors boosting gross premiums written similarly propelled the rise in insurance revenue.

Regarding loss events, the first nine months of 2023 witnessed a series of natural catastrophes, including wind and convective storms in the US, wildfires in Hawaii, an earthquake in Turkey, hurricane Idalia, and cyclone-induced floods in New Zealand. Additionally, some risk losses were recorded, particularly in the energy sector, though these were not materially significant individually.

“During the first nine months of 2023, we have continued to successfully implement our long-term strategy to manage the market cycle and deliver strong profitable growth through a portfolio of diversified products,” said Alex Maloney, Lancashire Group CEO. “I am always impressed by the talent, hard work and dedication of our people across the Lancashire Group and I would like to thank them for their ongoing commitment to the business. I would also like to thank our clients, brokers and shareholders for their continued support.”

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Arch Insurance International has unveiled its new intangible assets division, with operations starting forthwith. This development follows the acquisition of select components of Aon’s intellectual property (IP) liability MGA business.

The newly formed unit is under the leadership of Ian Lewis (pictured above), appointed as the head of intangible assets. The team, consisting of five specialists transitioning from Aon, will provide a suite of insurance products targeting the rapidly shifting landscape of intangible assets.

Businesses of various scales will have access to coverage for intellectual property infringement, contractual liabilities, invalidation risks, and business interruption losses. Lewis will operate under the direction of Duncan Smith, head of professional lines at Arch.

With a career spanning over three decades, Lewis is acknowledged for his expertise, especially in the intellectual property and intangible risk sectors. Before his new role, he was the global head of intellectual property underwriting solutions at Aon and has previously held positions at Tokio Marine Kiln, Samian Underwriting Agency, and Miller Insurance Services.

The London-based underwriting group also includes Justyn Hardcastle as senior underwriter, Carys Bickmore and Ben Kemsley as underwriters, and Chris Sclimenti, who is based in the US, as a senior underwriter. Sclimenti will liaise closely with the London team and will lead the development of Arch’s life sciences practice.

“The launch of our intangible assets team is a natural progression for Arch as we continue to expand our professional lines offerings,” said Hugh Sturgess, CEO of Arch Insurance International. “We see significant opportunities for growth in this class and are well positioned to offer our brokers and mutual clients comprehensive solutions to respond to the evolving risks to their intangible assets. By bringing on board an established and respected team led by Ian, we seek to establish Arch as a lead market in the intangible assets space.”

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Troubled insurtech Vesttoo is pivoting to an asset sale to “monetise valuable technology,” according to court documents.

A new filing in the Chapter 11 bankruptcy case indicates the Israeli startup’s push to create a reorganisation and trade forward plan has been pulled back and that it is now seeking a “quiet, private sale.”

Explaining the move, Vesttoo’s interim CEO Ami Barlev said creditors calling for liquidation aren’t seeing the value in the firm’s artificial intelligence and machine learning technology. Vesttoo has asked for time to deliver on a “value-maximising” transaction.

Where is the Vesttoo saga now?

Late last month, a committee of Vesttoo creditors sought to take control of court proceedings, pushing for a swift liquidation of the insurtech, which has been embroiled in an international reinsurance letter of credit (LOC) fraud investigation.

According to a Bloomberg report, the committee called Vesttoo “the Madoff of insurance” and said remaining cash should be preserved so it can pursue potential litigation against former corporate insiders and other parties involved in the alleged fraud.

The committee is composed of insurance companies and an insurance underwriter.

Vesttoo countered by accusing the committee of disrupting its restructuring efforts. It also pointed out that the insurtech has valuable technology and a viable business plan that it will pursue in Chapter 11.

What are your thoughts on Vesttoo’s planned asset sale?

Swiss Re has made a huge turnaround, bouncing back from a net loss in the first nine months of 2022 to a net income in the same period this year.

Of the total net profit in the first nine months, US$1 billion came from the third quarter.

“Swiss Re’s performance in the first nine months of 2023 is the result of our continued focus on underwriting quality,” group chief executive Christian Mumenthaler said. “This has enabled us to navigate a heightened risk environment that continues to be characterised by significant loss events for the insurance industry.

“In light of the good performance year to date, we maintain our targets for the full year including a group net income of more than US$3 billion. We continue to focus on our disciplined underwriting strategy that provides a strong base for the future.”

Swiss Re’s full-year 2023 results will be announced in February 2024, while the company’s 160th annual general meeting will take place in April.

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Jensten Group’s acquisition of East Anglia-based One Broker Group has been finalised following approval from the Financial Conduct Authority.

This acquisition marks the largest one for Jensten to date, offering the company a substantial new regional centre in East Anglia, with operational offices in Norwich and Cambridge. The acquisition brings on board 115 staff members and contributes £60 million in gross written premiums to Jensten’s business portfolio.

With the successful integration of One Broker, Jensten reiterated its commitment to further expansion within East Anglia, both through organic growth and additional acquisitions. The company anticipates announcing further business deals in the region soon.

“The acquisition of One Broker highlights the strength of Jensten’s proposition to brokers contemplating a sale where a clear commitment to retaining a regional presence is important. One Broker is one of the outstanding regional assets in the UK broking sector, and we are delighted to welcome Robin Plaster, Sean Clark and the rest of the team to the Jensten family. We look forward to working with the team to achieve further growth in East Anglia,” Jensten CEO Alistair Hardie said.

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AXA has completed the acquisition Laya Healthcare for a consideration of €650 million, contingent to the deal’s unveiling earlier in May.

The French insurer acquired Laya from AIG, with the latter confirming details of the deal back in August. Laya Healthcare is one of the largest private healthcare insurers in Ireland with close to 700,000 policyholders and a 28% market share.

Laya also generates €800 million in premiums per annum and operates as a managing general agent (MGA) with a highly digitalised platform and robust distribution network. It is underwritten by Elips Insurance, a Swiss Re subsidiary. The firm was integrated into AIG back in 2015.

AIG’s sale of Laya is in line with the company’s recent restructure. A few weeks ago, the group laid out its plans to trim its stake in Corebridge Financial, its life and retirement business, by the end of the year. AIG also revealed that it is selling off its Validus Re business to RenaissanceRe.

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