In Brief: Cyber Risk, Aged Care And Retail Pain

Weekly Reports | Oct 28 2022

Weekly broker wrap: cyber risk threat, aged care occupancy. 

-Insurers warn lack of cyber security could be the biggest risk facing companies
-Aged care occupancy shows signs of improvement
-Australian households expected to use credit for Christmas shopping

By Danielle Austin & Rudi Filapek-Vandyck

Premiums go up as cyber risk increases 

Allianz Global Corporate and Specialty (AGCS) feels insurers have a role to play in ensuring customers adapt to the changing risk landscape amid an increasing number of cyber attacks, highlighting insufficient cyber security could be the biggest risk facing companies today. 

With cyber crimes estimated to cost the global economy in excess of $1 trillion each year, it has become prudent for insurers to work with companies to improve cybersecurity in an effort to minimise risk. Insurer AGCS has reported elevated levels of cyber insurance claims in recent years, particularly as companies shift data and storage to the cloud, citing ransomware hacks as one of the largest drivers of cyber insurance losses. 

A record 623m ransomware hacks were made in 2021, double the number of attacks in 2020, and despite some stabilisation of claim activity 2022 has potential to be another high-claim year. The insurance industry has become more rigorous about underwriting processes, imposing minimum levels of cyber security and incentivising companies to improve controls to be less attractive to attackers.

According to AGCS, companies with better cyber security maturity are less likely to be victim to multiple successful attacks and losses are typically less severe. Insurers like AGCS are now able to collaborate with customers and provide useful information and advice on effective measures, and notes there are signs that risk management actions are beginning to take effect. 

According to AGCS, risk management experts have called cyber incidents and business interruption the biggest concern to their businesses in the coming year, reflecting not only the increase in attacks but the vulnerabilities of companies. Business disruption losses can be as much as seven times extortion demands, with costs rising if companies are not quick to respond to a cyber attack.

With larger companies improving cyber security, AGCS warns small and medium-sized companies are proving more attractive targets, with manufacturing and industrial companies particularly at risk of ongoing disruptions losses, potentially needing months to restore production levels after an outage. 

Occupancy improves in residential aged care

Spot occupancy for the residential aged care sector appears to have improved on the previous half, and Macquarie expects further improvement to emerge as covid cases continue to decline. 

Occupancy in aged care facilities has declined over the last five years, initially from an increased supply of places and more recently as a result of the pandemic.

The industry also looks to benefit from the new Australian National Aged Care Classification model which came into effect from the beginning of October. Macquarie estimates the model will provide an uplift of $18 per resident per day, bringing average payments to $225 per resident per day. However, the broker also estimates that minimum care and staffing requirements could drive additional costs of $21 per resident per day, offsetting any additional funding.

Given expected upside to occupancy, Macquarie has taken a more positive outlook on Estia Health ((EHE)) and Regis Healthcare ((REG)). The broker has lifted its ratings to Outperform and Neutral repectively, and lifted near-term earnings assumptions. 

First Christmas, Then The Hangover?

Retail analysts at Jarden turned themselves into busy bees this week, releasing no less than two in-depth analyses on the sector.

As supply chain constraints are easing around the globe, freight rates are falling off the proverbial cliff. Meanwhile, currency moves are noticeably huge.

Both factors have significant impact on costs for Australian retailers, with, for example, all of Treasury Wine Estates ((TWE)), Costa Group ((CGC)) and Lynch Group ((LGL)) major beneficiaries of falling freight costs.

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