According to a new report from AM Best, Munich Re reportedly makes “relatively little use” of retrocession compared with Swiss Re, SCOR and Hannover Re.
AM Best’s report observed that Swiss Re has shifted in recent years to increase its use of retrocession protection, while significant use has long been a feature of SCOR and Hannover Re’s strategies.
This leaves, Munich Re, which is said to make relatively little use of retrocession when compared with the other three. Still, as per the rating agency, all four tap into the index-linked securities (ILS) market as part of their retrocession strategies, and in all forms available.
“The Big Four European reinsurers’ traditional cat bonds provide primarily retro protection for peak risks such as named US windstorms and US earthquakes, as well as European windstorms. AM Best also sees reinsurance sidecar structures in place, such as collateralised quota share arrangements, alongside traditional retrocession covers,” AM Best added.
The rating agecny’s report also underlined how the segment has been among the first wave of cyber catastrophe bond sponsors.
In December 2023, Swiss Re sponsored a cyber cat bond for USD 50 million, Matterhorn Re Ltd. This is the first of its kind to feature an industry loss trigger and provides retro protection for exposures to US cyber industry insured losses on an occurrence basis.
Meanwhile, Hannover Re issued the first cat bond (on a private basis) to cover cloud outage, which AM Best said is a segment that seems to have been lacking protection from the retro markets.
“These issuances signal both strong demand from issuers and strong interest from investors in securities that are linked to cyber, driven in part by the typically short-tail nature of the risks and by improvements in modelling,” AM Best said.
The rating agency continued, “In addition, spreads are currently double compared with natural catastrophe bonds, as they would include a risk charge for the modelling uncertainties, and also factor in a novelty premium.
“The amounts issued for cyber bonds are still comparatively low and the issues to date can be considered part of an initial ‘testing’ phase.
“AM Best would expect a further increase in appetite from investors once more clarity is provided about systemic risk exposures, war and other event definitions, and once additional comfort about the maturity of cyber modelling has been reached.”
