Analysis: Reinsurers remain keen but cautious on cyber risk
Cyber reinsurers are cautious but committed to supporting their cyber clients
Ahead of this year’s Rendez-vous de Septembre, CyberInsurer.com spoke to the major cyber brokers and reinsurers to gauge the market’s appetite for the peril.
Generally, major carriers remain keen to support their cedants in a line that is tipped to continue to increase massively in importance in years to come, but concerns remain in particular over systemic risk, and certain types of coverages - especially for non-proportional treaty structures - remain scarce.
Reinsurance is critically important in cyber, with a little over half of all cyber premiums ceded to reinsurers - far more than in other lines.
Chris Storer, who heads up Munich Re’s Cyber Centre of Excellence for global and North American reinsurance clients, described Munich Re’s approach as “very committed” to cyber, which he described as being of “high strategic relevance” to the reinsurance giant.
“Of course there are natural limits to our appetite and going forward there will be a need to prioritize capacity for the most profitable business,” he said, adding: “We're now focusing our attention on some of those great issues that the market is wrestling with [like systemic risk]. Until there are good answers for some of those issues, it will somehow inhibit growth across the market.”
Owing to capacity constraints, many cyber reinsurers are looking to reallocate capacity to higher-margin deals, according to Guy Carpenter’s co-heads of cyber, Anthony Cordonnier and Erica Davis.
Simon Dejung, chief underwriting officer of Scor’s cyber reinsurance business, said the firm is “cautious” in writing cyber business because of concerns about probable maximum losses (PMLs) indicated by the models.
“The market is getting back to profitability - the catastrophe element is getting solved step by step from a wording perspective, but more clarity is needed to achieve contract and legal certainty and models must give credit for robust wordings.”
Hannover Re’s position on the matter is similar. Sven Althoff, who leads Hannover Re’s property/casualty reinsurance business, said that after years of strong growth in premium, the firm is “aiming to optimize the portfolio, taking into account the favorable rate development.” Althoff said Hannover Re doesn’t have growth targets in terms of cyber gross written premiums, but he expects them to increase at least in line with inflation.
But the current state of caution will not last forever. Many cyber insurers and reinsurers have invested heavily in understanding the peril and are becoming increasingly comfortable with it.
“Reinsurers provide insights on trends, on thinking about scenarios, on the use of data, and how the market is evolving.”
Catherine Mulligan, global head of cyber at Aon's Reinsurance Solutions business, said that the conversation between cedants and reinsurers is rapidly evolving, especially owing to the latter’s determination to understand the peril.
“They provide insights on trends, on thinking about scenarios, on the use of data, and how the market is evolving,” she said. “Previously the cedants were driving the conversation.”
In the long term, the outlook for cyber insurance and reinsurance is strong. The actions of the primary market in raising rates and improving its underwriting is leading to turnaround in profitability.
Chris McEvoy, head of cyber for PartnerRe, said that within the cyber insurance market, “it’s clear in our minds that there was a loss trend that accelerated through 2018, '19 and '20.” But, he added: “There has been a very key focus on corrective underwriting from probably the mid–point of 2020 though last year and this year.”
Improvements in profitability, Guy Carpenter predicts, will lead to greater comfort from reinsurers which will attract additional capacity to the class and relieve some pressure on terms and conditions in the coming reinsurance cycle.
Aon’s Mulligan echoed this assessment. “Reinsurers that had not been very active in the cyber space are now seeing the terms and conditions moving in a direction that feels supportive to them. They’ve been willing to come on-line and participate in programmes.”
She added: “I can now assemble a broad panel of reinsurers for a client, and for me, that speaks to the availability of cover, and it speaks to the strategic commitment to cyber that our reinsurance partners have shown”.
