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Zurich tapping into cyber attack insurance

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Zurich tapping into cyber attack insurance

(Reuters) — Zurich Insurance Group is tapping into growing corporate demand for insurance against cyber attacks and the risks posed by climate change, its general insurance chief said.

More businesses want protection against the economic fallout from hacking, including regulatory fines for data breaches and physical damage to systems, Michael Kerner told Reuters in an interview.

"The size of this business is still relatively small, but it's growing quite rapidly," he said.

Sony Corp. and others have suffered large data losses at the hands of hackers, illustrating the risks cyber attacks pose to corporate data, while the European Union is threatening unprepared firms with heftier fines.

Other insurers, such as Allianz, are also eyeing growth in cyber insurance.

Cyber insurance products in the United States already generate premiums of around $1.3 billion per year but only around €150 million ($192 million) in continental Europe, according to a senior Allianz executive.

Mr. Kerner, a 47-year-old American actuary who joined Zurich in 1992, said businesses in emerging and mature markets may be targeted by hackers and though prevention is difficult, firms can mitigate risks or transfer them with insurance products.

Outsourced manufacturing and streamlined supply chains also makes firms more vulnerable to the growing risks posed by climate change, said Mr. Kerner, who took over last year as head of the general insurance division which accounts for roughly half of group business operating profit.

Floods in Thailand and the earthquake and tsunami in Japan in 2011 disrupted supply chains, as did the 2010 eruption of Iceland's Eyjafjallajokull volcano that shut down European airspace for six days.

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"People like to live next to the water, people like to live in warm places, those places tend to get hurricanes and big storms," Mr. Kerner said, adding this trend would lead to more catastrophe claims and losses.

Zurich expects losses of around $140 million from last month's floods in central and eastern Europe, and $138 million from two tornadoes that hit Oklahoma City in May.

Between 13-20 tropical storms may brew in the Atlantic basin this year, up to 11 of which could become hurricanes, forecasts from the United States indicated in May.

While floods, hurricanes and storms may increasingly present insurance companies with opportunities to earn income from underwriting, low interest rates — slashed close to zero in Europe and the United States after the 2008 banking crisis — continue to weigh on their investment income.

Should investment income recover as rates rise again, Mr. Kerner said Zurich's general insurance division would be able to tolerate lower underwriting income and a higher combined ratio, an industry gauge of profitability that weighs payouts against premium income. A lower ratio denotes higher profitability.

The insurer, which reported a combined ratio of 94.9% in the first quarter, expects returns of 13-15% on capital in the medium term, and 16% in the long term.

But Mr. Kerner said he did not see any real relief from higher interest rates until there were much larger movements.

"We don't really anticipate that happening," said Mr. Kerner, speaking at offices in Zurich that are dotted by an art installation of huge boulders, making the building look like it has been hit by a meteor shower.