PCS launches global cyber industry loss index

Property Claim Services (PCS) announced that it has launched PCS Global Cyber, a new loss aggregation service that provides “industry loss estimates for individual affirmative worldwide cyber events with insured losses of at least $20 million industrywide.”

Developed in collaboration with Capsicum Re, PCS Global Cyber reflects significant insurance and reinsurance market demand for an independent third-party view of cyber industry loss estimates, PCS explained in a press release dated Sept. 4.

“With the support of many insurers and reinsurers around the world, PCS Global Cyber enables insurers, reinsurers and other stakeholders in the global risk and capital supply chain to gain access to an unbiased view of the industry loss for large nonelemental events around the world,” PCS said in the release. Insurers, reinsurers and stakeholders can also use the index to facilitate reinsurance and alternative risk-transfer transactions, an area where the need for a loss aggregation service has been palpable, the release added.

“Our latest entry into the specialty lines – PCS Global Cyber – benefited from the direct involvement of many players across the market,” said Tom Johansmeyer, assistant vice president of PCS. “Over the past year, we’ve listened closely to the insurers and reinsurers pioneering cyber coverage and included their feedback to ensure we would bring a useful and reliable loss aggregation platform to market.”

With a consistent, rigorous approach to industry risk loss aggregation, PCS Global Cyber should help companies understand losses and transfer risk more effectively, reported PCS, a Verisk Analytics business. “We believe that the launch of this index could help grow an ILW [industry loss warranties] market that could provide access to much-needed capital markets capacity and increase retrocessional activity – two key factors in growing the overall cyber insurance market worldwide.”

Ted Gregory, director of PCS operations, added that the PCS team sees the importance of growing industry loss aggregation beyond property-catastrophe. “And through our collaboration with the specialty lines community, we’ve put together a methodology that not only meets the needs of this sector but that is flexible enough to be adapted from one class of business to another.”

Using the specialty lines approach developed initially for PCS Global Marine and Energy, launched earlier this year, PCS will be able to drive more specialty lines risk loss aggregation solutions to market faster, providing insurers and reinsurers with greater flexibility, a deeper understanding of loss events and improved response when an incident occurs. “As with any event, we’ll adhere to our defined methodology to arrive at consistent, independent, and reliable industry loss estimates.”

Ian Newman, a partner with Capsicum Re – a reinsurance broker working in partnership with Arthur J. Gallagher as its primary treaty reinsurance broking outlet – said that the company developed the global cyber loss index with PCS based on specific feedback from the market, as well as the trends identified in structuring and facilitating risk-transfer transactions. “It’s clear that there’s appetite for ILW trading from both buyers and sellers. The emergence of a robust cyber ILW market will be crucial to the overall growth of this class of business, as prudent risk transfer can maximize the availability of underwriting capital, and will ultimately help bring original risks to market.”

The global insurance and reinsurance industry’s response to the launch has been “quite strong,” PCS suggested in the release. Kara Owens, global head of cyber risk with TransRe noted that as cyber risk continues to evolve and exposure to global cyber events grows, clients now actively seek risk transfer solutions to address these growing threats. “The insurance and reinsurance industry will need innovative solutions to provide the necessary capacity and coverage. We applaud PCS for taking the initiative to research viable solutions and bring additional and consolidated data to the market to help our industry address this important exposure for our clients.”

Clive O’Connell, partner – head of insurance and reinsurance at international law firm McCarthy Denning, said that the loss index “is an important step both for those needing protection and for ILS investors. The enabling of products that provide what purchasers need coupled with creating diverse investment opportunities is a significant step forward.”

Neil Strong, head of global origination at insurance-linked securities (ILS) manager Securis Investment Partners, also welcomed the launch of PCS Global Cyber. “It will enable and assist ILS managers to continue the development, knowledge, and understanding of a complex insurance risk. This may be a preferred route to access and invest in diversifying but fledgling markets such as cyber insurance. To date, the ILS market has not followed the Lloyd’s market in this area, preferring to continue its analysis, but additional comfort can be taken by the professionalism and expertise that PCS brings to the table.”

PCS reported that the loss index already has estimates for several events, including the recent U.S. Southwest system outage and a series of significant 2013 breaches. The full historical database is complete and ready for use, as is the process for developing future estimates.