Rising interest in APAC cyber from London insurers puts pressure on rates

A growing number of insurers are choosing to write Asian cyber business out of their London offices. This is increasing competition in the market and putting downward pressure on rates.

While many insurers – including Beazley, AXA XL and Tokio Marine Kiln – have chosen to set up dedicated cyber underwriting teams based out of Asia, others see the value of writing more Asia cyber business without having a footprint in the region.

“Recent claims experience and saturation of other markets has meant that insurers in London are looking at where else they can write business, and Asia presents an obvious opportunity.”

Struan Todd

Co-founder and Chief Insurance Officer of Blackpanda Underwriting

Struan Todd, Co-founder of Blackpanda Underwriting and its Chief Insurance Officer, says that this is being largely driven by tighter conditions in Europe and the United States, which still attracts the majority of cyber insurance business.

“Recent claims experience and saturation of other markets has meant that insurers in London are looking at where else they can write business, and Asia presents an obvious opportunity,” says Todd.

These sentiments are echoed by Giv Kahrom, Head of Cyber for Asia at Swiss Re.

“What we’re observing is that, as global cyber markets have softened slightly, the growth rate in terms of premiums being written has fallen to 8%. In the past this would have been in double digits,” says Kahrom. “The difference with APAC is that, here, we are still seeing double-digit growth.”

Todd says that large brokers in the region, such as Aon and Marsh, have now spotted insurers from outside of the region that are willing to take on more cyber risk, so they have gone to investigate what kind of pricing they can get.

“This is causing downward pressure on rates,” he says.

“The [global] growth rate in terms of premiums being written has fallen to 8%… the difference with APAC is that, here, we are still seeing double-digit growth.”

Giv Kahrom

Head of Cyber for Asia at Swiss Re.

Getting comfortable with the risk

This emerging dynamic comes soon just as several global insurers have been looking to expand their cyber footprints within the region. In a recent interview with (Re)in Asia, Beazley’s new APAC head, Jessica Schappell, said that building up the cyber portfolio in the region was one of her top priorities.

A core part of Beazley’s cyber strategy is the value-added services that it attaches to many of its products. This requires the specialty insurer to have a strong presence on the ground.

The same is not true of these insurers writing cyber business out of London, many of which are targeting larger accounts, according to Todd.

“It’s mainly the large corporates where we see business being written out of London. The mid-market risk is mostly being picked up in the local market,” says Todd.

This helps the London-based insurers, who might not have an in-depth knowledge of the regional market, get comfortable with the risk that they are taking on.

“They’re used to seeing big accounts globally. They like this type of risk if it’s in the US or European markets, and now they’re starting to win similar accounts in Asia,” says Todd. “These insurers know the basic risk profile from the global account. They will simply recalibrate pricing these for the Asian market dynamics, based on assumptions such as: types of cyber attack being experienced, frequency of such attacks, sophistication of attacks and so forth.”

Todd warns that the main danger associated with such assumptions is the behaviour of hackers and the behaviour of clients. For example, if a major cyber attack occurred in the US, the most likely response would be to secure data and notify the regulators as soon as possible. In many Asian markets, this could be a great unknown.

“In soft market conditions, where few claims are happening, everyone thinks they’ve got enough information to underwrite a business. If we start seeing claims activity coming back to where it was during the recent hard market, then there may not be enough data to make useful assumptions,” says Todd.

Reinsurance capacity

Greg Carter, Managing Director for Analytics at AM Best in Singapore, says that the extent to which cyber insurance is likely to grow in the region will strongly depend on reinsurance capacity.

“There’s definitely growing interest in Asia cyber, but this is heavily dependent upon reinsurance capacity. Some of this is almost 100% reinsured. Primary insurers are increasingly dipping a toe in the water, but they’ve got a very significant life jacket from the reinsurers,” he says.

“We’ll have to see what happens once we get a cyber cat event. I think that will test the market.”

Greg Carter

Managing Director for Analytics at AM Best

He adds that this could change as insurers become more comfortable with this risk and start retaining more of it themselves.

“There is a genuine opportunity in the region, and cyber insurance is a very hot topic right now. However we’ll have to see what happens once we get a cyber cat event. I think that will test the market,” says Carter.

Building locally

Despite the pressure on rates that this new interest in Asia cyber brings, those that are building out their cyber business in the region say that they have little to worry about.

“This is probably a function of where we are in the market cycle, with insurers looking to grow beyond the London market. Such players would typically be looking to the North American market, but now they are starting to look this way as well,” says Pavlos Spyropoulos, Regional Managing Director for Asia Pacific at Tokio Marine Kiln.

“This is probably a function of where we are in the market cycle, with insurers looking to grow beyond the London market.”

Pavlos Spyropoulos

Regional APAC MD at Tokio Marine Kiln

“But, from our perspective, we’re investing in having the talent here, because ultimately this means that we’re closer to the client and closer to distribution channels. This means we have a better likelihood of winning business and also being able to serve the service those smaller businesses,” Spyropoulos adds.

As competition increases in the Asia cyber space, those insurers with cyber businesses in the region are starting to look beyond the markets that they are most familiar with, and see where else they can set up.

“They are now looking to move beyond their traditional Asia base to see how they can also write cyber in Malaysia, in Indonesia.”

Bethany Vohlers

Model and Product Specialist in Moody’s RMS Cyber Solutions team.

“This year I’ve noticed a shift in that conversations I’ve been having are some of those players with regional footprints here. They are now looking to move beyond their traditional Asia base to see how they can also write cyber in Malaysia, in Indonesia,” says Bethany Vohlers, Model and Product Specialist in Moody’s RMS Cyber Solutions team.

“It’s true that they are competing with global players operating out of London or New York, but these regionally-based insurers have on-the-ground expertise. They can develop a better understanding of the domestic claims environment and provide customised policies for cyber that better serve community needs.”