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Securitization likely future of cyber risk: Experts



The cyber insurance market may go against the securitization of cyber risk, although it will take several years for that market to develop, says the insurance manager.

"I think we will be able to isolate some tail events that we" I will be able to securitize for some of our major clients, "said Andy Marcell, New York-based CEO of Aon PLC Aon Reinsurance Solutions. It will happen because it is not correlated with other risks, he said.

Mr. Marcell was among the speakers at a CEO session on Wednesday during the Minneapolis-based Professional Liability Underwriting Society's cyber symposium 2012, which was held virtually.

There are some covers that can be insulated to create "discreet, customized covers", Mr Marcell said. "If we do our jobs correctly on the retail side, the demand for coverage will increase" and create the extra capacity needed, he said.

He said that insurance and reinsurance brokers must be able to provide certain underlying information with respect to results against a set of deterministic scenarios. "I think we'll get there as an industry, hopefully," he said.

Referring to his company's acquisition of a company specializing in insurance links, Richard R. Whitt, co-CEO of Markel Corp., said, "We receive inquiries from investors all the time."

He pointed to them in the capital markets and said: "These are smart people" who need to achieve a certain return and want to know that there is the expertise available to deal with the risk and the information available to back it up. [1

9659002] "It is imperative" that over time cyber insurance links enter the market, because cyber risk not everyone can sit on insurance companies, Whitt said. "It is an existential risk" that must be spread to the wider financial markets, he said.

"It will take some time" to prove this, but there is a need for insurance links to help with the solution, he said.

Mr. Marcell also said, "It is possible to see a scenario where business entities, especially in the United States," will not only be able to buy cyber insurance but also go directly to the capital markets and buy some form of securitized bonds.

Kenneth Brandt, President and CEO of New York-based Transatlantic Holdings Inc., said that it could take more than ten years for this strategy to develop and that in the meantime, public-private partnerships "could be a good transition."

Andrew Barrengos, President and CEO of Woodruff Sawyer & Co., said that there have been two fundamental changes that have taken place in the cyber insurance market.

One is in terms of the scope and breadth of coverage and the other is that coverage has gone from being discretionary to something that is not only common but seen as significant with the exponential increase in the organizations risk profile.

Mr. Whitt said the cyber market has evolved in a way similar to the labor market and environmental markets, which also migrated from being discretionary to "fairly standard" coverage.

As a result of the training that has taken place over the last 20 years. , "it's hard to imagine a Fortune 500 company not having cyber coverage right now," he said.

Mr. Marcell said that although the extent of coverage has changed dramatically, the majority of cyber-related economic losses are not insured in the United States, and coverage penetration "generally falls away fairly quickly" outside the United States

Mr. Brandt said that two things drive purchasing: coercion, which is the case with regulation and loss. "There has been no major system event," he said.

Mr. Marcell said the "two big fears" in the cyber market are frequencies of light and "some gigantic system loss" stemming from a single unit failure that affects the entire industry.

The PLUS session was moderated by Pascal Millaire, CEO of San Francisco-based CyberCube Inc., a cyber risk analysis company. Catalog

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