GC’s Cordonnier: Cyber reinsurance market needs 20-30% extra capacity each year “just to stand still”
Cyber reinsurance capacity must grow by 20-30 percent each year to meet the growing demand from primary carriers, Guy Carpenter managing director and co-head of cyber Anthony Cordonnier has warned.
Cordonnier, who was speaking at a cyber insurance conference hosted by Advisen in London this morning, said cyber reinsurance required an “an influx” of fresh capital “just to stand still” as cedants continue to face a capacity crunch.
While he said some reinsurers are increasing their appetite in line with the primary market, Cordonnier said “many, many more players” were required in the reinsurance space to accommodate the roughly 40 percent of primary insurance premium which is passed on to reinsurer balance sheets.
“Some reinsurers are growing with the market and pumping more capital in, especially now we have seen results improving due to rating and underwriting actions,” he said. “But we still need more players to come to the table.”
Cordonnier said several reinsurers have expressed an interest in entering the cyber class but to date have not commenced writing the risk.
“It’s our job as a broker to help them with data and insights in understanding the risk and bring that capital to the table,” he said.
Cordonnier described the cyber reinsurance market as “incredibly condensed” with the top five writers of cyber reinsurance in recent years accounting for around 50 percent of reinsurance premium.
“But now, back of envelope maths takes you to those five players writing closer to 70 percent – it’s really concentrated.”
As reported by this publication, the cyber reinsurance premium pot is understood to have increased by as much as 70 percent at the 1 January renewals despite cedants’ underlying exposures remaining flat or in many cases shrinking.
Munich Re, the largest cyber reinsurer with an approximate 10 percent market share, grew its cyber premium volume by 70 percent to close to $1.5bn during 2021.
Reinsurance pricing outpacing primary?
Also speaking on the Advisen panel, Michael Shen, head of cyber and technology, London market at Canopius, discussed pricing dynamics between primary and reinsurance cyber covers.
Shen said that while cyber excess of loss cover had become “prohibitively expensive”, he noted that “it was no secret” that most markets buy quota shares, with the latter witnessing a couple of points change on ceding commissions.
“In terms of remuneration on ceding commissions there has been a bit of pressure there,” Shen said.
He said the scarcity and rate increases witnessed in cyber reinsurance cover followed actions taken by the direct market in response to losses experienced in the 2018/19/20 years of account.
“For me, when [reinsurance pricing] really started to pick up pace was in early 2021,” Shen said.
“But for most direct markets that meant they had had a whole year before their treaty came up for renewal,” he added.