< Previous8 BEST’S REVIEW • OCTOBER 2022 Executive Changes analyst, management accountant and business partner. Prior to that, he was a management accountant at Marsh for three years, according to his LinkedIn profile. Zurich Names Group Head of Financial Lines and Cyber Z urich Insurance Group named Stephen Moss as group head of financial lines and cyber, and Andreas Schmitt as group cyber underwriting manager. Both appointments to the group underwriting function were effective Sept. 1. Moss will be responsible for professional indemnity, directors and officers, financial institutions, mergers and acquisitions, cyber and legal indemnities. He will continue to be based in the United Kingdom, the company said. Moss joined Zurich in 2017 as head of specialties, United Kingdom, and has more than 25 years of experience in the insurance industry. Throughout his career, Moss has held various senior underwriting and broking roles, including casualty portfolio underwriting director, and underwriting director for financial risks, according to a company statement. Moss joined Zurich from Britt Insurance, where he worked for more than 12 years, lastly as underwriting director. He also held roles at HSBC and American International Group Inc., according to his LinkedIn profile. In his new role, Schmitt will work closely with Zurich’s country offices worldwide to ensure a consistent and enhanced cyber underwriting approach and provide product expertise and counsel to optimize underwriting performance. He will be based in Switzerland, according to the company. Schmitt joins Zurich from Munich Re, where he was head of cyber, Asia. Schmitt has spent his entire career in insurance and reinsurance and brings more than 30 years of underwriting experience to the role, having worked and led diverse teams on all continents, the company said. Argo Group International Appoints Former GuideOne Exec as President, US Insurance A rgo Group International Holdings Ltd. hired Jessica Snyder to serve as president, U.S. insurance. Snyder has almost 30 years of industry experience and joins Argo from GuideOne Insurance, where she most recently served as its president and chief executive officer from 2017 through 2022. During her time at GuideOne, Snyder led the company’s restructuring to a mutual holding company, expanded its niche commercial and excess and surplus insurance product lines, reconfigured its reinsurance program, and strengthened the leadership team and board with experienced executives, according to a company statement. Prior to GuideOne, Snyder held multiple leadership positions in the property/casualty industry. She served as senior vice president of commercial and specialty lines at State Auto Insurance. She also served as senior vice president, chief operating officer and chief financial officer at Rockhill Insurance Group, and as CFO at Citizens Property Insurance, according to the company. Scor Names Successor to Retiring Chief Underwriting Officer of Aviation S cor named Adrian Poxon to succeed Andrea Sommerlad as chief underwriting officer aviation. As of Sept. 1, the aviation team is led by Poxon, who takes on this role in addition to his existing duties as CUO of global specialty lines for marine and energy, engineering, aviation and space, the company said in a statement. Sommerlad, who retired after 25 years with the company, led the team through events such as 9/11, the Boeing 737 Max incidents, COVID-19 and most recently the Russia/Ukraine/Belarus crisis, according to a company statement. Poxon spent the first half of his career in the London market, starting out in aviation insurance before changing direction to marine when he moved from the company market into Lloyd’s. He joined Scor in January 2022 as chief underwriting officer of the global specialty lines for marine & energy, engineering, aviation and space, the company said. BR Jessica Snyder Adrian Poxon Stephen Moss9BEST’S REVIEW • OCTOBER 2022 Monthly Insurance Magazine Published by AM Best A.M. BEST COMPANY, INC. Oldwick, NJ CHAIRMAN, PRESIDENT & CEO Arthur Snyder III SENIOR VICE PRESIDENTS Alessandra L. Czarnecki, Thomas J. Plummer GROUP VICE PRESIDENT Lee McDonald A.M. BEST RATING SERVICES, INC. Oldwick, NJ PRESIDENT & CEO Matthew C. Mosher EXECUTIVE VICE PRESIDENT & COO James Gillard EXECUTIVE VICE PRESIDENT & CSO Andrea Keenan SENIOR MANAGING DIRECTORS Edward H. Easop, Stefan W. Holzberger, James F. Snee AMERICAS (NCSA) WORLD HEADQUARTERS 1 Ambest Road, Oldwick, NJ 08858 Phone: +1 908 439 2200 MEXICO CITY Av. Paseo de la Reforma 412 Piso 23, Col. Juárez, Alcadía Cuauhtémoc, C.P. 06600, México, D.F. 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While the content was obtained from sources believed to be reliable, its accuracy is not guaranteed. For additional details, refer to our Terms of Use available at AM Best website: www.ambest.com/terms. Articles from outside contributors do not necessarily reflect the opinions of AM Best. When presented herein, Best’s Ratings reflect AM Best’s opinion as to the relative financial strength and performance of each insurer in comparison with others, based on analysis of the information provided to AM Best. However, these ratings are not a warranty of an insurer’s current or future ability to meet its contractual obligations. Printed and bound by Fry Communications, Inc. Made in the USA MASTHEAD Background illustrations on both mastheads are of HMS Victory. To learn more about The Nelson Collection at Lloyd’s, visit www.ambest.com/nelson. FORESTAY10 BEST’S REVIEW • OCTOBER 2022 In the News Regulatory Update David Pilla is a news editor. He can be reached at david.pilla@ambest.com . Wildfires proposed regulation and possible cap raise for Citizens in Florida. W ildfires: California’s insurance commissioner is seeking approval for insurance pricing regulation he said will recognize and reward wildfire safety and mitigation actions undertaken by homeowners and businesses. “Providing a premium discount to consumers for risk reduction that is not based on actual risk reduction is concerning, and mandating such a discount is even more problematic. Additionally, a one-size-fits-all approach to regulating insurance, especially when insurers are not allowed to use modern risk assessment models, is not good for the marketplace,” said National Association of Mutual Insurance Companies Western region Senior Vice President Christian Rataj. H omeowners Insurance: The Florida Office of Insurance Regulation is looking into whether it’s time to raise the cap on Citizens Property Insurance Corp. insuring Florida homes more than $700,000 in value. Citizens will insure a home up to $700,000, except in Miami-Dade and Monroe counties, which includes the Florida Keys. Homes there can be insured up to $1 million, Susanne Murphy, OIR deputy insurance commissioner for property & casualty and a member of Citizens’ Market Accountability Advisory Committee, said. “We are looking at whether there is evidence to support a finding that there’s a lack of competition in other counties,” Murphy said. A lack of competition within a county is the standard that must be met for the higher coverage level to be applied, she said. AM Best: Reinsurers Face Potential for Complex Losses The outlook for the global reinsurance market is rated “stable” by AM Best. by David Pilla A rapidly changing risk landscape fueled by geopolitical concerns, inflation and a shift away from natural catastrophe exposure among reinsurers is creating opportunities even as reinsurers watch for uncertain conditions, according to AM Best analysts. Geopolitical and macroeconomic risks are creating greater awareness of coverage needs and the chance to develop new products and services, said Catherine Thomas, senior director, analytics, AM Best, at the Rendez-Vous de Septembre conference in Monte Carlo, Monaco. The reinsurance market is facing increasing exposure to emerging and intangible risks, said Thomas. Climate and demographic trends can add to a higher potential for significant unanticipated loss accumulations for reinsurers, she said. The outlook for the global reinsurance market is rated “stable” by AM Best but the market has some headwinds and tailwinds, including a more complex risk environment, more risk from secondary perils and emerging risks, said Carlos Wong-Fupuy, senior director, AM Best. Economic uncertainty including inflation, rising interest rates and the risk of recession are also factors in the reinsurance outlook, he said. The reinsurance market remains well- capitalized and while rates continue to increase, they are doing so at a slower pace, said Wong- Fupuy. New capital also continues to enter the market but with a lower impact than in past cycles, he said. Another development in the reinsurance market over the past year has been a shift away from the property catastrophe segment, said Wong-Fupuy. Wong-Fupuy also noted reinsurers are facing increasing challenges in modeling for natural catastrophes and hard-to-model events. In the past, there has been an over-reliance on and complacency with catastrophe risk models as well as a “commoditized” view of risk, said Wong-Fupuy. He added traditional risks are becoming less predictable. Human behavior and government intervention are having a greater impact on the reinsurance industry, said Wong-Fupuy. He said government restrictions related to COVID-19 and the subsequent business interruption issue are examples. Events including the Russia-Ukraine conflict were not an issue 12 months ago but are becoming significant now, he said. On the positive side, the reinsurance market is seeing sustained upward pricing and improved terms and conditions, said Thomas. Reserve development is more positive, and shifts in business mix are leading to more stable results, she said, adding underwriting discipline has improved. BR On the positive side, the reinsurance market is seeing sustained upward pricing and improved terms and conditions. Catherine Thomas AM Best22.BNRS18DF Our Insight, Your Advantage ™ Learn More: sales@ambest.com www.ambest.com • (908) 439-2200 STAY UP TO SPEED WITH BEST’S NEWS & RESEARCH SERVICE Get a fresh perspective on the global insurance industry with AM Best’s comprehensive news and research service. With a new name and a new look, this streamlined resource delivers fast, efficient navigation to the real-time news, research and thought leadership you need to make informed decisions. Best’s News & Research Service was formerly known as Best’s Insurance News & Analysis. Contact customer_support@ambest.com with subscription questions.At Large 12 BEST’S REVIEW • OCTOBER 2022 By Tony Kuczinski The burgeoning market requires creative solutions. Bringing Sustainability to Cyber Insurance T he cyber insurance market presents a tremendous growth opportunity for our industry. However, along with this growth potential come certain distinct challenges. As an industry, we’ve been modeling property and casualty risks for hundreds of years. In comparison, we have a small amount of data for cyber, and even this data is often of limited use in modeling specific and evolving cyber-related risks. We know the potential dangers to cars, buildings, and businesses, and the likelihood of those damages occurring. Conversely, the cyberthreat landscape can change on any day, at any moment. Even a minor change in system architecture or the installation of new software can significantly change a customer’s cyberrisk profile. Cyberrisk is also unique in that it cannot be geographically isolated. While the risks from a winter storm in Texas do not necessarily correlate to additional risk exposure outside the immediate area, a cyber incident impacting a popular software program could prove disastrous for countless firms worldwide. If the software is used by hundreds or thousands of businesses, the risk is multiplied. The complexity of cyber as a peril and the evolving nature of the risk create challenges in insurance product design, underwriting, risk management and accumulation control. Nevertheless, as insurers, we must develop a sustainable approach to address these challenges, as cyber insurance is fundamental to the successful digitization of business on a global scale. When it comes to cyber, the target is constantly moving, as “bad actors” perfect their methods and find innovative ways to counter security measures. In response, we need additional players who are financially strong, committed to the long term and well-staffed with professionals in all areas, including specialized cyberrisk managers, underwriters, claims professionals and technology experts. Collectively, our vigilance and adaptability will be key to ensuring the highest caliber of cyberrisk management and resilience for our clients. As an industry, we need more open discussion and more creative solutions—and soon. Insurance is a competitive business, but when it comes to cyber, we must combine forces and align on a strategic approach to this dynamic and evolving market. Best’s Review contributor Tony Kuczinski is chief executive officer of Munich Re US P&C Cos. He can be reached at bestreviewcomment@ambest.com.13 BEST’S REVIEW • OCTOBER 2022 Data forms the basis of our understanding of any risk. We must become more data-focused, determining the specific information to capture and how to capture it. Improvements in available data will enable more frequent, detailed analysis and performance assessment, leading to more accurate modeling. For this reason, the industry needs to create data-sharing mechanisms, with commonly agreed data schema. The standardization of definitions and exclusions in cyber policies is also essential. Cyber policy wording should be clear and well-defined, leaving no doubt in customers’ minds about what is and is not covered. As part of this standardization of language in cyber policies, we must be clear about war exclusions. We must also do more to educate our customers, encouraging them to take a more active role in mitigating their risk through strong cyber hygiene. Customer efforts in the areas of governance, technology and training subsequently factor into cyber insurance pricing, driving risk mitigation and building resilience. Despite our best efforts, the cyber market will likely remain characterized by a higher degree of uncertainty than other lines, due to the nature of technology. To date, the insurance industry has proven that we can effectively manage this challenge. However, with rapid digitization creating the need for increased capacity, significant steps must be taken to ensure the long-term health of this burgeoning market. Ultimately, greater efforts are needed to incorporate capital markets in our management of cyberrisk, joining forces in a sustainable approach to this evolving systemic concern. BR14 BEST’S REVIEW • OCTOBER 2022 By Lance Ewing T hree engineers, one electrical, one chemical and one computer, were riding in a car when it suddenly stopped running. The electrical engineer recommended stripping all the electronics out of the vehicle to fix the problem. The chemical engineer suggested flushing the fuel line. The computer engineer said, “Let’s just turn off all the systems, wait two minutes, and start it back up again.” Or so the story goes. Today’s computers, laptops, phones and electronic devices are so technologically sophisticated that they come with a plethora of protective software and firewalls to defend the device and hopefully the network the device is using. But for major corporations and entities one of the most common forms of technology protection is cyber insurance. This insurance coverage celebrates its 25th year of existence in 2022, dating to 1997 when the American International Group issued its “internet security liability policy” that spring. Not only have the policies changed dramatically over those 25 years but so have the exposures, the risks, the claims and the premiums. The average cost of a data breach globally averages to US$4.35 million in 2022, according to the Ponemon Institute. Along with these increases the cost of cyber insurance premiums has skyrocketed. These increases reflect the numerous claims that have occurred and affected not just major corporations, but middle-market and even small businesses. According to the U.K.-based cybersecurity company Sophos, cyber insurance rates for 2021 had risen the most in the following industries: energy/oil/gas and utilities; media/ leisure/entertainment; professional services; IT/ technology/telecoms; financial services; and public sectors. These industries have become the higher target for hacker and ransomware attacks, which in turn has been driving higher cyber premiums. However, there are insurance carriers who also bear some responsibility for the most recent staggering premium increases. Underwriters are not Best’s Review columnist Lance Ewing is vice president, enterprise risk management and operations for the San Manuel Band of Mission Indians. He also is a former president of the Risk and Insurance Management Society. He can be reached at bestreviewcomment@ambest.com. Risk Adviser Underwriters are not matching the superiority of hackers versus their clients’ cyber protection systems. Cyber Coverage Hits Landmark, but Challenges Remain15 BEST’S REVIEW • OCTOBER 2022 matching the superiority of hackers versus their clients’ cyber protection systems. Not asking deeper and probing questions in the submission applications and then having the consequences of this omission become the root of the ransomware claim. This has led to substantially higher claims reserves and claim payouts reaching new altitudes. Thus the increase in premiums, lower limits, higher required deductibles and an escalation of exclusions in policies—and, even in some cases, denial of coverage, as well as the now- voluminous underwriting submission package. With these changes, boards of directors, C-suite executives, chief information security officers and risk managers discuss larger cyber insurance premiums, higher deductibles, fewer limits and the risk appetites and cyber hygiene of their companies for this coverage. Some good news in 2022 are indications that the cost of cyber insurance premiums may have begun to flatten slightly. While welcome news for clients, is it too late for the carriers who took a harder line in the hard cyber market? Businesses have begun to look at and embrace alternatives to the traditional cyber “pay and pray” (pay the high premiums and pray nothing happens during the policy year) approach. Putting cyber exposures in captives, risk retention groups, cyber parametric bonds, and self-funded cyber capital reserves are just a few of the financial risk alternatives that are being explored and implemented by clients. Some privately held entities are even considering going naked instead of paying the premiums even if their renewal is flat or a slight reduction. The cyber insurance market may be celebrating 25 years of existence, but the aging process has been anything but a smooth ride. Let’s see what the next 25 years will bring. 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