XL Catlin targets Canadian banks with customized operational risk coverage

XL Group PLC announced this week it is offering customized insurance covering operational risk for financial institutions, with limits of up to US$900 million. The target market includes Canada.

The losses it covers could include fraud, mis-selling or exchange manipulation, an XL Catlin spokesperson told Canadian Underwriter Wednesday.

“We will create a customized policy to cover that major risk that the client tells their management and tells their regulator is a very large concern for them,” said Angelo Deftereos, senior underwriter, operational risks at XL Catlin, in an interview.

The insurance “may also act as an instrument to boost regulatory capital and offset economic capital requirements,” Dublin, Ireland-based XL Catlin stated July 7 in a release.

The limits available are up to US$300 million per operational risk type and up to US$900 million per client, Deftereos told Canadian Underwriter.

“What has changed with operational risk is … people are much more concerned about those major, existential types of risks,” Deftereos said. “So for insurance to be meaningful, to respond and to be relevant to that client, you need to have that very large capacity against those major risks.”

The primary target market is the major banks. XL Catlin is also targeting financial institutions with operational risk or enterprise risk teams which have identified major risks to management and regulators.

“Operational risk is kind of a blanket term that’s used to cover a multitude of things,” Deftereos said. “A number of different types of risks fall into the category of operational risk.”

XL Catlin would not cover fines or penalties because it is not legal for the insurer to do so, Deftereos said.

“Each institution has their own risk profile based on their history, their current business profile and their ambitions,” he said, adding XL Catlin would work with clients to develop policy wordings.

Broker could be involved in selling XL Catlin’s customized operational risk to financial institutions, Deftereos suggested.

“A lot of the brokers are very actively engaged in Canada with their clients on the operational risk front,” he said. “There’s definitely a role for them to play.”