The landscape of cyber reinsurance is undergoing significant transformation as the 1 January 2025 renewals approach, marking an evolution in market dynamics that reflects increasing maturity and efficiency. According to Howden’s 1.1 renewal report, these changes are characterised by a notable moderation in prices, the emergence of new reinsurers, and an intensified focus on non-proportional products.
The smooth progress of the renewals can be attributed to favourable conditions for reinsurance buyers throughout 2024, driven primarily by an oversupply of capacity and reduced demand, complemented by manageable large losses. Notably, nine new reinsurers entered the market in anticipation of the 2025 renewals. This includes seven established carriers as well as two balance-sheet start-ups, contributing approximately $250 million in additional capacity to the sector.
Despite several systemic events throughout 2024—including a ransomware attack on Change Healthcare and a widespread IT outage—the impact on the upcoming renewals has been minimal. These incidents did, however, prompt reinsurers to reassess their underwriting processes for contingent business interruption and systems failure coverage. Many reinsurers have requested further data regarding the specifics of these coverages, indicating a cautious approach to risk management within the sector.
Howden's report highlights that the global cyber insurance market experienced approximately 5% growth in gross written premiums during 2024, a stark contrast to the aggressive 26% annual growth witnessed from 2018 to 2022. This slowdown can be attributed to reduced pricing alongside high penetration rates within more mature markets.
As reinsurers seek to diversify their portfolios and tap into emerging opportunities, attention is increasingly drawn to regions exhibiting lower insurance penetration, particularly Central and Eastern Europe, the Middle East, and Southeast Asia. Despite the potential for growth in these markets, analysts caution that such expansion will not occur overnight.
The assessment process for the 2025 renewals has been notably granular, with reinsurers evaluating cedents on an individual basis. Those with well-performing books may experience risk-adjusted rate reductions of up to 20% within the excess-of-loss market. In contrast, quota share programmes, which remain the predominant structure for a majority of cedents, experienced an average increase of just over one percentage point in ceding commissions, with certain cases reporting increases as high as five percentage points.
Reflecting the evolving market conditions and the growing confidence among reinsurers regarding the classification of cyber risks, there has been a discernible shift towards providing risk excess-of-loss reinsurance products aimed at bolstering cyber portfolios. In light of ongoing concerns related to systemic events, a mounting number of cedents are pivoting from proportional to non-proportional products, seeking enhanced tail protection. Reinsurers are responding to these shifts by proactively considering event structures and demanding greater transparency concerning systemic exposures.
As Howden succinctly puts it, these ongoing developments “translate into an increasingly mature and efficient marketplace,” signalling a transformative phase for the cyber reinsurance sector as it adapts to the complexities of the current risk landscape.
Source: Noah Wire Services