Cyber reinsurers ‘observant and appreciative’ of hard primary market changes

By Erin Ayers on January 18, 2022

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 performance, 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.”

Managing Editor Erin Ayers can be reached at [email protected]'

Erin is the managing editor of Advisen’s Front Page News. She has been covering property-casualty insurance since 2000. Previously, Erin served as editor-in-chief of The Standard, New England’s Insurance Weekly. Erin is based in Boston, Mass. Contact Erin at [email protected].