ILS fund managers concerned about ‘silent cyber’ exposure

A vast majority of insurance linked securities (ILS) fund managers are worried about their exposure to ‘silent cyber’ - or non-affirmative cyber, suggests a new survey and white paper by  PCS, a Verisk business.

The company polled ILS fund managers asking if they believe they have non-affirmative cyber exposure in their portfolios. Some 89% of respondents said they believe they do. Examples of non-affirmative cyber can include cyber events may lead to losses in other classes of business, such as property, marine, or professional liability.

But the survey also revealed that many are not sure where in their portfolios it is, how much exposure they have, or how to manage it. “Most respondents appear to have accepted non-affirmative cyber simply as an aspect of doing business, although they reported that they would like to carry as little as possible,” the white paper, called ILS Funds and NonAffirmative Cyber Risk, stated.

The report continued: “Some ILS funds reported that they simply accept the risk, while a few have sought to identify and quantify it. Most respondents seemed to indicate that the non-affirmative cyber risk they held (if any) was tolerable, particularly given the use of cyber exclusions in other classes of business.”

PCS noted that many of the ILS funds that answered this question indicated that they have exclusions specifically related to cyber in the reinsurance business they write. The process of adding those exclusions generally has become easier, PCS notes. “While addressing other exclusions in the market, ILS fund managers reported that they were also able to bring in cyber exclusions.”

Some respondents said that they do their best to exclude non-affirmative cyber but assume that some exposure may slip through. Many indicated that they must have some “somewhere” in their portfolios but had made no specific effort to identify or quantify it at that time.

“Based on the survey responses, the question that remains is whether there are any significant differences between the cyber exclusions used by ILS funds that believe they have some non-affirmative cyber exposure and the exclusions used by those that do not believe they have any non-affirmative cyber exposure,” the white paper concluded.

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