Market conditions, regulation and cyber risk are seen as the top three risks for Bermuda insurers and reinsurers, according to a new survey.

The fifth survey by the Centre for the Study of Financial Innovation (CSFI) indicates how high a concern they have become for the industry.

The CSFI’s latest ‘Insurance Banana Skins 2015’ survey, conducted in association with PwC, polled over 800 insurance practitioners and industry observers in 54 countries, including 18 in Bermuda, to find out where they saw the greatest risks over the next two to three years.

Globally, regulation emerged as the overall top risk for participants for the third successive time, underlining the deep impact regulatory change is having.

“The most striking new theme to emerge from this survey is the high level of anxiety about cyber risk, specifically software failure and data security breaches,” the report stated.

“The chief concern is the security of the ever-growing volumes of data that insurers hold in cloud-based storage systems. For many, major breaches are inevitable; the question is how much damage they will cause?”

Arthur Wightman, PwC Bermuda leader and Insurance leader said: “Cyber risk is now ranked number three in Bermuda and it is the top concern in the US and UK. As an industry that handles large amounts of other people’s money and personal data, insurers are prime targets.

“As a result cyberattacks and data breaches are seen as especially urgent by the industry both from the standpoint of a threat but also as an opportunity. With material losses now in the billions, the demand for insurance to cover cyber risk has risen considerably. Notwithstanding, cyber is also an underwriting risk which has yet to be fully scoped.”

A pressing concern in Bermuda was that the current soft market and an excess of capital in the industry threatened conventional business models.

Mr Wightman added: “The long-term prospects for insurers and reinsurers are positive as people around the world live longer and have more wealth to protect.

“Yet they also face the disruptive impact of new technology, changing customer expectations, more exacting regulation and enduring economic uncertainty. Insurers’ ability to identify and manage emerging as well as familiar risks will be one of the key differentiators for success in this volatile competitive environment.”

One Bermuda respondent warned: “The soft market combined with low investment yields may force some in the market to chase premium.”

Another said: “My biggest concern is the impact of alternative capital and the consequential rate reduction. My worry is with the additional overheads required, whether traditional reinsurers can survive in such a market.”

Underwriting risks also featured higher than they did globally. One Bermuda respondent called the threat from climate change to all business lines — general, life, and pensions — “huge”, and urged the industry to do much more to raise awareness.

On natural catastrophes, a Bermuda respondent predicted “more extreme events in locations where they are not expected”. Cybercrime was also mentioned as a potential underwriting risk. A respondent warned about: “Unknown coverage around who covers what and where coverage will fall in the event of a large scale attack”, adding: “Companies might look to claim on existing policies in the event that cyber is not mentioned or excluded anywhere.”

As was the case in many countries, the costs of compliance with new regulation was a frequent grievance in Bermuda, seen to be particularly disruptive to small insurers.

Regulation is “a huge cost and quite likely will require changes in business practices”, said one respondent. However, other public environment risks, such as political interference and reputation, were considered much less pressing.

Globally, the report says that new rules governing solvency and market conduct could swamp the industry with costs and compliance problems. It could also distract management from the task of running healthy businesses at a time when the industry faces radical structural change.

The EU’s Solvency II Directive, to be introduced next year, was the focus of strongest concern, but many other countries are introducing similar measures, often modelled on Solvency II.