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Banks Look to Insure Against Exceptional Losses 

May 6, 2017

Christopher, Spink, Reuters

Banks and other financial institutions are increasingly looking to protect their earnings, and capital positions, by taking out insurance to reduce their exposure to unexpected financial shocks, such as major IT problems or employee misconduct.

Last year Credit Suisse managed to insure against the possibility of large one-off charges through a SFr250m (US$252m) policy, less than the SFr700m initially sought. However, this was only possible after the insurer said the bank would have to pay a large “excess” before the policy paid out.

Now other lenders are assessing such products or related ones that for example might insure against commodity price falls forcing them to write down the value of loans exposed to such risks.

“The concept is spreading beyond major banks to smaller and mid-sized firms,” said Angelos Deftereos, senior underwriter, operational risks, at XL Catlin.

“Larger banks are looking at many different solutions [to offset operational risks] rather than taking whole products,” he said. “There has been an upsurge in interest in the last few months in this area.”

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