Page 21 - Insurance Times May 2023

rience are starting to see the payoffs. Ukraine's energy grid, with similar latory response has reduced the risk of
Claims teams can work more effec- spillover risk for similar assets abroad. severe systemic financial strain.
tively with better allocation of re-
Lack of robust cyber-security for criti- The bank bond holdings of European
sources which improves the experience
cal Operational Technologies (OT) may insurers rated by Moody's are also of
for claimants/beneficiaries builds trust
be an unmitigated point of vulnerabil- moderate size, the rating agency said,
and brand loyalty.
ity for battery energy storage systems and their exposure to riskier Additional
"We understand the importance of (BESS), Aon warned.
Tier 1 (AT1) instruments - hybrid bonds
making it easy to file a claim, have it
BESS assets compromised by a threat designed to convert into equity, also
processed and receive payment
actor could be exposed not only to known as contingent convertibles (Co-
quickly," said Carl Christensen, Global
data loss, but also to physical damage cos) - is negligible.
Head L&H Solutions, Swiss Re Reinsur-
and catastrophic 'thermal runaway' "We estimate that the average AT1
ance Solutions, "We're thrilled to part-
events, the re/insurance broker said. exposure of Moody's rated insurers is
ner with Benekiva to offer a holistic,
Energy storage installations around the less than 1% of their total bank debt
digital claims processing solution that
can free up claims staff to focus on world are projected to reach a cumu- holdings, with some variation between
what matters most: helping customers lative 411 GW - or 1,194 GWh by the companies. AT1 bonds are riskier than
through a very difficult time." end of 2030, according to the analysis other bank debt because they are the
by data provider Bloomberg. most junior instrument in banks' capi-
tal structure," Moody's said.
Energy storage market has This growth goes hand-in-hand with
the digitisation of the energy system, The insurance sector nonetheless faces
invisible cyber risks - Aon
Aon noted. an increased risk of asset quality dete-
Asset owners and operators in the bat-
rioration, Moody's warned, amid wors-
tery energy storage system market Due to the nature of this digital evolu-
ening economic conditions and rising
must bolster their cyber resilience as tion, energy sector OT assets are now
interest rates, which could erode its
they face emerging cyber threats, Aon connected more than ever, which may
earnings and solvency.
has warned, in its annual Global Risk leave asset owners exposed to un-
Management Survey. known risks and open to attacks from In light of recent trends, Moody's said
threat actors, the broker warned. it expects the corporate default rate
The report is a shot across the bows for
for speculative-grade financial and
energy underwriters, who are respon- "Lithium-ion (Li-ion) batteries - cur-
nonfinancial companies to rise to 4.6%
sible for the growth of the emerging rently the most commonly used in BESS
at year-end 2023.
market, deemed critical to efforts to - require careful monitoring and con-
combat climate change. trol of their voltage, current and tem- This is under the rating agency's
Energy businesses faces an increasingly perature conditions," said Paul Gooch, baseline scenario, up from 2.9% at the
complex cyber risk landscape, Aon head of cyber open market at Tokio end of March, and expected to peak
said, with new forms of volatility and Marine Kiln.https:// at 4.9% in early 2024.
current geopolitical tensions driving www.globalreinsurance.com/ "We estimate that bank bonds account
scrutiny on the security of essential for around 23% of European insurers'
energy infrastructure. Banking contagion risk total corporate fixed income portfolios
Previous Russian suspected state-spon- on average, down from around 30%
limited for European in-
sored cyber-attacks have been aimed shortly after the 2008 global financial
surers - Moody's
at its neighbous such as Estonia, or crisis, and for around 8% of their total
Ukraine, in the case of the 2017 Europe's insurers are insulated from fixed income exposure," Moody's said.
NotPetya attack. However, the turmoil involving banks, according to
"This is equivalent to around half their
blowback from this event also affected Moody's, in the wake of the March
shareholders' equity. About 75% of in-
many western organisations. 2023 rescue of Credit Suisse by Swiss
surers' bank debt was rated 'A' or
Recent Russian cyber-attacks, since regulators and rival bank UBS. above at FY2022, and a further 20%
the start of the 2022 Russo-Ukrainian Moody's sees little immediate risk to was rated 'Baa'," the ratings firm con-
War, have focused on crippling European insurers, as the prompt regu- tinued.

20 May 2023 The Insurance Times