Panel: Cyber reinsurers more bullish because of market’s scale and maturity

Themes at the 1.1 cyber reinsurance renewals included abundant capacity for cedants, loss ratio caps increasing in some cases, alternative capital adding to pricing pressure and rising but manageable frequency, according to speakers on a NetDiligence panel.

Speakers on a reinsurance panel at the NetDiligence Cyber Risk Summit in Miami Beach on 13 February provided feedback on the trends seen at the recent 1.1 renewal.

Erica Davis, managing director and global co-head of cyber at Guy Carpenter, said that the 2024 renewal cycle was different not just from 2023 but also 2021 and 2022.

“At 1.1.2024, we definitely saw a shift towards this being more of a buyer’s market on the reinsurance side. We have scale now and maturity in the market,” she said.

Guy Carpenter estimates cyber GWP globally at around $15bn, which is a much larger market than just five years ago.

“With that, you start to gain a more credible view of how the market and individual portfolios are performing,” Davis said.

Guy Carpenter’s analysis shows that ultimate loss ratios have been 50 percent or lower for all years other than 2019 and 2020, not inclusive of catastrophe loads. Davis described this as “really strong” portfolio performance.

The executive commented that since 2020 the portfolio performance has improved, which has led to a lot more capacity entering the market.

“As a result of that performance improvement, we also saw cessions begin to reduce, which created additional capacity,” she added.

Davis explained that some insurers are more willing to take on the attritional risk now that they have a better understanding of how their portfolio works.

In addition, she highlighted that there were premium misses across the market last year because the expectations that big rate increases would carry on into 2023 were wide of the mark. This also resulted in additional capacity being available.

“That all led to a hungrier market,” Davis said.

She continued: “On the quota share side we did see increases in ceding commissions that averaged about 1 point across our client base, and selected cases of loss ratio caps increasing again as a result of the settled rate environment. And on the non-proportional side, attachment points and RoLs decreased.

“So, overall, a much better story for the buyers.”

The majority of cyber reinsurance treaties are quota shares, with many including a loss ratio cap. Davis commented that there are not many loss ratio caps that go past 400 percent, and that they generally hover in the 300s.

Davis noted that some new reinsurance players had entered the cyber reinsurance market, while some that had been moderate players in the past “were definitely feeling more bullish about the cyber market going forward”.

There was more XoL cover bought at 1.1 but Davis noted that only one or two larger players had gone “all in” on that approach.

“We had some buyers who were saying, we want to take advantage of the fact this is a buyer’s market and buy lower down, get more limit, or potentially attach higher in order to scale the cover,” she said. “But we had others who, because the portfolio size had stayed fairly in line with the 2023 projection, kept it about the same or even potentially a little less.”

Alternative capital enters the picture

Last year saw the entrance of alternative capital into the cyber market, with the first cat bond deals being placed, which has been followed by several issuances this year as well.

“That’s really going to put pressure on the pricing approach and the structure of some of the precedent that's been created in cyber buying,” Davis said.

Occurrence-based covers, which are bought for targeted scenarios, also started to get more traction at 1.1.

Davis explained that one of the holdups of those covers has been a reliance on how to define particular scenarios or cyber events, which can create basis risk in the buying. She noted recent advancements in the modelling.

The reinsurers on the panel welcomed the development of the cyber ILS market as a positive.

Annamaria Landaverde. cyber practice lead at Munich Re US, said it shows a maturing of the product.

“I think it's necessary that we have all these various products,” she said. “Munich Re is a proportional-only reinsurer but I think that the quota share product is still going to be very necessary, especially with all the ebbs and flows with the loss trends.”

Cyber insurance rates down while losses up

Discussing Munich Re’s experience at 1.1, Landaverde said the reinsurer saw a lot of different structures or programs in the market and a lot of different mixes of underlying business.

“We did see an overall decrease in rate in the market, but it really varied based on the portfolio. The general theme was overall rates were depressed in 2023. There were some projected premiums that we saw in 2023 that ultimately didn't pan out as planned, and so our clients had to kind of refocus.”

Devin Page, SVP and head of specialty reinsurance at Ascot Bermuda, noted the trend in the underlying cyber insurance market of losses being up and rates being down, “which I don't think anyone wants to be the status quo”.

He suggested that after two “stellar years” in 2021 and 2022 as a result of rate increases and claims that “just dropped off a cliff”, the losses have reverted to a more normal trend in 2023 and into 2024.

“It's probably not a cause for panic, regardless of those big percentage increases that we've seen,” Page said of the increased loss frequencies. “But there also was never any cause for euphoria in 2021 and 2022. I remember having a cedant come to us in 2022 and use the term ‘we're in a post-ransomware world.’ That hasn't aged that well.

“Frequency is up but I think it's manageable.”

Page highlighted the threat of supply chain attacks, which present aggregation and systemic risk issues, as well as putting a spotlight on contingent business interruption coverages.

On the same panel, Ho-Tay Ma, senior vice president at Scor, referenced the lag in the data that reinsurers receive from cedants, despite noting that there were a lot of positives for reinsurers at 1.1.

He cautioned that reinsurers see submissions [data] that are three to six months old, and Q3 and Q4 were active for threat activity.

“I am encouraged by the rates being positive for some of the older years, limits going down and claim frequency was good for 2022,” he said. “But at the same time, I as a reinsurer have to look forward and see where the rates, claim frequency and severity, coverage extensions are going in the future. So it's kind of a mixed bag for me.”