Cyber reinsurance market evolves but further developments crucial

When it comes to fundamentals, some players have taken advantage of the hard market to push each other to share better data. Reinsurers will always have less visibility into data on individual insureds than their primary counterparts - however, cyber data sharing has been particularly sparse at times.

Where the market standard used to be to share only aggregate information with no policy-level bordereaux that has shifted to a market standard of policy-level bordereaux with detailed firmographics and terms and conditions.

At the end of the day, this will benefit the entire industry. If reinsurers are able to be more confident in their modeling and pricing, this can only speed up the market expansion that is needed.

Cyber expertise also resides in the bucket of fundamentals.

This is still being built across the value chain but increasingly carriers are investing resources to build out cyber-specific teams, bring in seasoned experts, and provide them with the data and models needed to compete. The market standard is still to pull in cyber expertise from other parts of the organization; the innovators have dedicated cyber teams and/or centers of excellence.

As expertise has increased within teams, we’re seeing the development of sophisticated views of risk.

These best-in-class and innovative experts are taking vendor models and really digging into them to understand where they either disagree fundamentally or simply see the need to modify assumptions based on their own book’s exposure and experience. These more specific and enhanced views of risk are allowing groups to consider more complex strategies than they might have considered previously.

Risk transfer discussions have become increasingly diverse.

Reinsurers are asking how they can increase capacity while others are just dipping their toe into the cyber market. Both sets of participants are looking to do so profitably, and not undo the rate increases of the past two years. In order to increase capacity, groups are looking to understand where and how they can deploy capital more efficiently. Are there areas in their risk transfer strategy that can benefit from the enhanced modeling capabilities available?

From portfolio underwriting to systemic modeling investments are being made to uncover these insights.

Modeling the potential impacts of infrastructure and war exclusions, (not a simple task!) as well as widespread event language, has helped reinsurers develop more precise views of their capital needs. CyberCube notes that reinsurers are looking at different ways to profitability increase capacity. Questions they are asking include:

• Are there event XoL structures that now make more sense?
• Are there certain products where groups want to move away from the war exclusions that others are increasingly adopting?
• Is ILS the next best area to focus risk transfer resourcing to? What is the role of regulators? Should there be some form of government backstop?

These are all important questions that need to be addressed as the cyber reinsurance market continues to grow. Great strides have been taken over the past few years in the maturation of the market - the next stage will be crucial to its long-term sustainability.