Aggregation and systemic risk in cyber insurance means commercial carriers need to build up more capital for large widespread losses, suggests the CEO of a Bermuda insurer.
Within cyber lines, Axis Capital Holdings Limited reduced its limits and increased deductibles, CEO Albert Benmichol said during an earnings call.
“We set much more stringent underwriting criteria, including stronger vetting of cyber defence capabilities,” Benmichol said July 28, the day after Pembroke, Bermuda-based Axis Capital released financial results for the three months ending June 30.
During the call, an investment banking analyst asked what is going on with terms and conditions, as well as contract structure, to mitigate some of the claims activity within cyber lines.
Since 2020, Axis has noticed an increase in ransomware attacks, replied Benmichol.
“I think the view of aggregation and systemic risk in cyber is really starting to increase,” he said, alluding to the concern that one cybersecurity incident could affect multiple organizations and therefore multiple insurers.
“Since last summer, we started to make significant amendments to our risk appetite” in cyber, added Benmichol.
Axis Capital writes commercial primary specialty insurance and treaty reinsurance from offices in Bermuda, the U.S. and elsewhere, including Canada. The insurer reported July 27 its financial results for the three months ending June 30. Its overall combined ratio improved from 94.7% in Q2 2020 to 90.6% in the latest quarter. In commercial primary insurance, net premiums written rose 18%, from $603 million in Q2 2020 to $713 million in the most recent quarter. All figures are in U.S. dollars.
In the commercial primary specialty insurance segment (as opposed to reinsurance), the three months ending June 30 was the 15th consecutive quarter in which Axis reported overall rate increases and the fifth consecutive quarter of double-digit average rate increases, said Benmichol.
In the most recent quarter, the average commercial primary insurance rate increase was more than 14%.
“Substantially all lines are showing increases at or above loss cost trends,” said Benmichol. This essentially means the increase in rates is greater than the increase in claims costs.
“Professional lines saw the strongest pricing action with average rate increases of 20%,” he said. This in turn was “driven by the rapid escalation in [pricing in] cyber lines.”
Axis Capital’s primary coverages in professional lines include cyber and privacy. Axis also writes directors’ and officers’ liability, errors and omissions liability, employment practices liability, fiduciary liability and crime, among others. In other commercial primary lines, Axis writes property, marine, aviation, terrorism and political risk, among others.
As for Axis Capital’s changes to cyber underwriting, other insurers are making similar changes, suggested Benmichol.
“The leaders in the industry are kind of acting with us. There is a consistent effort, which makes these actions (Axis Capital’s changes to terms and conditions) a lot easier to put in effect, because everybody is looking at it that way.”
Axis reported July 27 its second-quarter net income nearly doubled, from $120 million in 2020 to $235.4 million in 2021. Overall net premiums written (both insurance and reinsurance) rose 14%, from $1.056 billion in Q2 2020 to $1.204 billion in the most recent quarter.
Feature image via iStock.com/Lorado