Cyber reinsurers 'observant and appreciative' of hard primary market changes
Advisen
Cyber reinsurers 'observant and appreciative' of hard primary market changes
By Erin Ayers, Advisen
Cyber reinsurance buyers found a disciplined market at Jan. 1, with higher prices and limited capacity for cyber aggregate cover, according to brokers who found prepping for the renewal season to be a full-year task.
Recent reports from Guy Carpenter, Gallagher Re, and Howden emphasized reinsurers' keen interest in underwriting strategies implemented throughout 2021 by the primary cyber market. Those efforts, which include rigorous risk selection, mandatory cybersecurity controls, and triple-digit price increases, are beginning to show signs of improving the sector's peformance, brokers say, but more time is needed to fully see the results.
The reinsurance market conditions weren’t unexpected, according to Erica Davis, managing director and global co-head of cyber at Guy Carpenter, the reinsurance broking arm of Marsh McLennan.
“We’ve had a little time now with the harder market under our belt and we’ve been tracking market developments as they occur. For cyber aggregate placement, reinsurers continued to push for margin improvement, based on industry performance deteriorating in recent years,” Davis told Advisen.
In a recent briefing, Guy Carpenter highlighted cyber aggregate cover as “the most challenged” segment of the casualty reinsurance market. Quota share cover buyers were met with more capacity.
“Quota shares remain fairly stable, particularly for those cedents who had detailed and timely data and who had a strong, articulated response to ransomware,” said Davis. “For aggregates, we continue to see demand outstrip supply and therefore pricing increases are still fairly common, though 1/1 saw them be less material than at mid-year.”
Guy Carpenter found sufficient capacity for its clients, but it was “contingent on having detailed high-quality submissions,” Davis explained. She added, “We have been engaging with our clients year-round to ensure they’re prepared for the expectations of this rapidly evolving market.”
Reinsurers looked to see that underwriting strategies – and they continue to differ across the primary market – go beyond merely raising prices.
“The rate improvement across the industry has been well-received and highly reported upon. There’s an acknowledgement that there’s been a higher degree of technical acumen in the underwriting,” said Davis.
The reinsurance market “was observant and appreciative” of the steps primary insurers undertook in 2021 to combat deteriorating performance in recent years. However, the market will remain under pressure going forward, particularly for writers of smaller businesses.
“I think the last 12-24 months have shown that segment of business is being just as impacted, if not more impacted, by ransomware,” said Davis. “We saw more focus on portfolios who write a lot of small business. Small businesses will be under increased pressure to elevate their risk controls. That’s been a notable shift in the market.”
The Log4Shell vulnerability that came out in late December presented “an unexpected placement hurdle” for Jan. 1 renewals, but the industry took it in stride, according to Davis.
“I think as an industry we’ve gotten better at not being reactive and showcasing our clients’ ability to track potential aggregation to these events. Insurers are getting better at being able to monitor and measure these potential impacts, which shows our maturation as a market. They’re learning from them and evolving the underwriting accordingly,” she said, adding, “While these events have been 'near misses' for the industry, they do emphasize the line’s potential for volatility.”
Cyber risk -- and threat of systemic losses – are one of the “three Cs” driving the insurance and reinsurance markets of late, according to Howden Broking. Cyber is joined by COVID-19 and climate as key concerns for reinsurers.
In another industry report, Gallagher Re reported “early signs” that reinsurers are differentiating by the underlying insurers’ use of advanced technologies and underwriting techniques to bring about improved risk selection.
While “the primary cyber markets are truly hard, the reinsurance market is hardening,” noted Gallagher Re in its report.
