Reinsurance News

Cyber market still hardening as underwriting view shifts: analysts

18th January 2022 - Author: Matt Sheehan

Analysts at some of the top re/insurance brokers have noted that the cyber reinsurance market is continuing to see hardening rates following another challenging year for losses in this sector.

Gallagher Re classified the primary cyber markets as “truly hard” at recent renewals, but said there is still room for reinsurance pricing to climb higher.

This is despite the ongoing availability of reinsurance capital on a pro rata basis, although there has been growing pressure on capacity for aggregate stop loss covers.

In addition to modest reductions in pro rata commissions, loss ratio caps were unchanged or marginally reduced in some instances.

And with primary cyber insurers deploying an increased utilisation of more advanced technologies and underwriting techniques, as well as portfolio optimisation through improved risk selection, analysts at Gallagher Re see early signs that reinsurers are starting to differentiate by ceding company.

“The very significant underlying rate increases and improvements in terms and conditions observed in late 2020 and throughout 2021 are being further compounded with reinsurers seeing benefits flowing through into this year’s renewals,” they stated.

At Howden, analysts see the hardening rate environment as a corrective measure in response to a surge in ransomware incidents and the threat of aggregated and systemic attacks.

Whilst companies are investing heavily in areas like data and cloud security, bad actors continue to target weaknesses and, as a result, insurers are prioritising companies able to demonstrate robust and tested security measures, Howden notes.

“Ransomware will be remembered as the digital pandemic of 2021,” the broker explained. “The frequency and severity of incidents has grown significantly in recent years, with cyber criminals deploying new tactics and techniques in pursuit of one simple goal: to make money.”

Risk appetite among insurers is also being impacted by the threat posed by potential aggregated or systemic losses, following targeted and increasingly frequent cyber attacks on system providers and critical infrastructures in 2021.

“This has brought about a remarkable shift in underwriting sentiment, pivoting from one of loss complacency to one of loss inevitability,” Howden continued. “Carriers are now taking the view that losses are no longer a matter of if, but when, and, as a result, have high expectations aro2und the sophistication of businesses’ cyber security in order to ‘qualify’ for cyber insurance.

Howden data shows cyber is also experiencing the most extreme rate increase across the entire insurance market, and, given the rate of acceleration in the second half of 2021, analysts believe that hardening looks set to continue for some time to come.

This, along with improved risk controls and renewed law enforcement rigour, is likely to support underwriting performance and may encourage new capacity to enter the market this year, as the degree of rate increase is currently outpacing the rapid changes to loss trends.

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