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Interest grows in covering cyber risk through Bermuda-domiciled captives

Interest grows in covering cyber risk through Bermuda-domiciled captives

SOUTHAMPTON, Bermuda — Bermuda is seeing interest from owners wanting to use their captive insurers to cover cyber risk as the local insurance market works on developing a primary insurance solution addressing cyber risks for their captive clients.

Bermuda regulators have seen a number of captives wanting to include cyber insurance in their programs and insure their cloud systems, as well as interest in covering film financing risks, said Akilah Wilson, assistant director of captive licensing for the Bermuda Monetary Authority, said at the Bermuda Captive Conference on Tuesday.

“We’ve been approached to see Bermuda’s appetite for also having those (medical marijuana) exposures in Bermuda captives,” she said. “It’s relatively new. We’re still going through some of the discussions on whether we have the appetite or not, but as we remain innovative, we always want to make sure we’re on top of any new trends.”

New captives are also inquiring about normal products such as workers compensation, she said.

The market for cyber coverage continues to grow, including in Bermuda where only three insurers, including AIG Bermuda Ltd., were writing the coverage in the mid-2000s — a number that is now up to 10 insurers, said John Masters, assistant vice president of AIG Bermuda-financial lines in Hamilton, Bermuda.

“There is just huge growth across a number of different industries — clients that are looking to buy insurance for the first time and are also looking to buy increased limits,” he said. “The appetites of markets on the island are quite all over the place. At the moment, we actually don’t have any primary insurance markets on the island, although right now several markets are working with Aon on a cyber solution for their captive client base. AIG Bermuda has signed up to be the primary Bermuda market in that solution.”

Currently, Bermuda insurers attach as first or second excess coverage providers in the $10 million to $20 million range all the way up to $300 million to $500 million, Mr. Masters said.

“There are a number of industry classes and client bases who find it difficult to find adequate capacity and coverage at an affordable price in the current market,” he said. “However, coverage is evolving at a very fast pace.”

From the captive perspective, there has been significant interest and questions about putting cyber risk into captives, but not much takeup, said Andrew Halls, senior underwriter for JLT Insurance Management (Bermuda) Ltd. in Hamilton, Bermuda.

“However, there has been more take-up recently,” he said. The way we’re currently seeing it done is either a deductible reimbursement structure whereby an insurance company may issue a policy with a big self-insured retention that is a balance sheet exposure and that is then insured into the captive. You can take a view on how much of that risk transfer you want to move over into a captive. With respect to other options, we’re seeing direct insurance, so a full-on captive policy issued to an insured for a $10-20 million limit. How do you price that? There are a lot of ways to do it, but there’s no official right or wrong way at this moment in time because it is an emerging risk. There is a level of modeling that relates to driving the price, however, that can only be relied upon to a certain extent and the commercial insurer may view that model differently than a captive insurer.”

But captives can play a key role in cyber coverage in terms of driving policy innovation or addressing catastrophic risk, said Mark Owen, vice president, insurance services, Aon Captive & Insurance Management in Pembroke, Bermuda.

“The innovation is probably by far the biggest thing because as the market develops you can work with that,” he said. “You can put it in a captive and one of the biggest things in my view is that when something happens, you need the money pretty much straight away to deal with a loss. The losses are very significant when they happen. When putting teams on the ground, you have to have the right ability to manage the losses. The captive gives you the scope to do that because it can pay for a lot of that very quickly. From that perspective, it becomes something that puts it in your control rather than the control of an insurer.”

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