AM Best has raised the profile of enterprise risk management (ERM) in its insurer rating evaluations due to increasing technological change and cyber-risk challenges.

ERM is formally recognised as a core building block, along with balance sheet strength, operating performance and business profile, in developing a credit rating opinion on an insurance company.

“The industry’s move towards more use of data and new ways to analyse behaviour open up new horizons in risk management,” AM Best says.

“In particular, the assessment and mitigation of cyber risk poses myriad challenges for insurers.”

A focus on coverage limits and aggregation risks is critical for insurers underwriting cyber, while fintech innovations and greater use of third-party vendors for data and analytics add layers of cyber and infrastructure risk, the ratings agency says.

AM Best views cyber risk as the next frontier for ERM and a top priority for insurers.

MD Criteria, Research and Analytics Jim Gillard says insurers recognise that ERM is a critical part of running a sound, financially secure operation, but requirements will continue to change.

“ERM is an evolutionary process,” he said.