Sunday, April 21, 2024

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Captives writing cyber programmes “emerging as a trend” – AM Best

The number of captives writing cyber coverage in their programmes is “emerging as a trend”, according to Fred Eslami, associate director, alternative risk transfer and cyber security leader at ratings agency, AM Best.

“We’ve seen a number of captives including cyber coverage in their programmes but writing cyber in the captive is not widespread,” he told Captive Intelligence.

“However, what we are hearing from those who have included cyber, is that it is emerging as a trend.”

The number of captives writing this coverage is on the rise, with Marsh managed captives writing cyber increasing by 75% between 2020 and 2022, according to a recent Marsh US Cyber Purchasing Trends report.

Eslami said that although the amount of cyber cover in captives is not “huge”, AM Best is seeing large organisations with the financial “wherewithal” and extensive cyber security investment able to put a layer of cyber into the captive.

He said that putting cyber into a captive does not happen “overnight” with the larger organisations doing their due diligence over the past several years.

“Typically, the captive sits within the ERM framework of these large organisations,” he said.

“It’s familiar with every aspect of the organisation, including the IT security investments and the talent that they hire to make sure that the corporation is protected.”

Captive Intelligence reported in May that Belgian chemical company Solvay, is insuring part of its cyber programme through its Luxembourg captive with the insurance team working alongside the chief information security officer (CISO) to fund cyber security initiatives.

Eslami said he has seen corporations spend several $100m a year in the cyber security field alone.

“In addition to that, they could be paying $10-12m buying coverage from commercial market,” he said.

“So, they come and evaluate all the risk and reward and realise it makes sense to keep cyber within the captive.”

Captive Intelligence published a long-read back in March, detailing that a lack of capacity and high pricing in the cyber market is resulting in increasing captive utilisation for cyber risk.

Eslami revealed that AM Best rates about 220 captives globally, with about 150 of those being in the US.

“Bermuda is the biggest domicile outside of the US. Of the 150 US captives, 36 are Vermont captives, and they’re all strong performing captives,” he added.

Last month, the ratings agency published an article that showed captives continue to outperform commercial insurers in both underwriting and operating profitability, according to AM Best’s latest Market Segment Report.