Reinsurance brokers: Non-proportional cyber covers broadened at renewals amid capacity oversupply

By Michael Loney

July 1 - (The Insurer) - Mid-year cyber reinsurance renewals were marked by continued favorable conditions for buyers, with excess of loss covers showing double-digit pricing cuts and increasing ceding commissions for proportional business, Aon and Gallagher Re have reported.

In its Reinsurance Market Dynamics Midyear 2025 Renewal report, Aon said cyber insurers experienced a buyers’ market for reinsurance at mid-year renewals, with ample capacity and further product innovation.

Aon reported strong demand for non-proportional covers at the mid-year renewals.

The increasing maturity of the market led some insurers to reduce their proportional reinsurance, putting quota share commissions under pressure.

“Ample capacity for excess of loss reinsurance led to low double-digit pricing reductions and flexible terms and conditions at renewals,” Aon’s report said. “With many insurers taking a more nuanced approach to reinsurance purchasing, the scope of non-proportional covers continues to broaden, with a wide range of catastrophe, aggregate and stop-loss covers available in the market.”

In addition, as first reported by Cyber Risk Insurer, Aon at June 1 placed a first-of-its-kind stop-loss reinsurance that protects insurers against a surge in claims within a specified time window.

In its 1st View report, Gallagher Re said that it saw at the mid-year cyber renewals a continuation of the same trends as at January 1, 2025. This led to risk-adjusted rate improvements in favor of reinsurance buyers and retro purchasers.

“This was expected in a market with an oversupply of capacity and a slowdown in organic growth. But there was growing demand, and supply, of turnkey solutions for international cyber, especially in the APAC region,” Gallagher Re’s report said.

GALLAGHER RE TAKEAWAYS

Discussing the U.S. and UK markets, Gallagher Re said that quota share cessions have now largely stabilized after generally reducing at January 1. It noted that fewer contracts renewed at July 1 compared to the turn of the year.

“Ceding commissions continued to trend upward in reinsurance buyers’ favor, by +1.0% to 2.5%. Where they fell on this range of increase depended on the cedants, their performance or expected performance, and the level of their inforce commission. There was scope for increasing loss ratio caps as well,” the report said.

Cedants for U.S. and UK aggregate excess of loss covers pressured reinsurers to reduce attachment points and/or pricing, and were prepared to retain more. Gallagher Re said that it “continued to see greater capacity supply relative to demand so cedants’ requirements were broadly achievable”.

Gallagher Re continued that the July renewals also included increasing prevalence of bifurcated placements across regions or portfolio segments, as well as ventilated towers.

The reinsurance broker reported that exposure-adjusted pricing for aggregate covers was down 15% to 20% year on year, which was similar to the change at January 1.

The minimum attachment points available on stop-loss covers fell by 15 to 20 percentage points.

“Interest in cyber cat products slowed a little at 1.1.25 as a consequence of an aggregate excess of loss market which softened more favorably for reinsurance buyers than the cyber cat alternatives. At July 1, the cat market needed to soften more to provide a compelling alternative to lower-attaching aggregate protection.

“We observed risk-adjusted change (RARC) in this area of -10% to -15%, but RARC here is more opaque, as the market wrestles with the latest changes to certain accumulation models’ views of risk,” the report said.

Gallagher Re also said that retro aggregate excess of loss renewals had risk-adjusted rate change of -5% to -15%, which was slightly less than for reinsurance.

“This was a consequence of a market which is closer to an equilibrium between demand and the supply of retro capacity,” the report said.

The broker also highlighted continued focus from cedants on managing critical infrastructure and war/cyber war exclusions, including managing any difference in conditions with treaty coverage.

In addition, Gallagher Re said recent loss activity in the UK market “has helped stabilize original rate for the time being”. It added: “But in the absence of a series of large losses and/or a true catastrophe of sorts, the appetite for cyber (re)insurance risk remains strong.”

For international business, there was continued interest in first-time purchases of non-proportional cover at the renewal. This varied between aggregate excess of loss and cat structures, with the former more popular.

“Global carriers’ interest in expanding into international markets continued, given the lower penetration rates and competition compared to the U.S. – coupled with ongoing softening in that market,” the report said.

PROTECTION GAP NEEDS TO BE ADDRESSED

In its report, Aon suggested that the biggest challenge for the cyber insurance market is addressing the cyber protection gap.

The broker’s research shows that organizations report insurance is in place to cover only 19% of information assets compared to 60% for property, plant and equipment. In addition, the likelihood of an intangible asset cyber event occurring is estimated by risk managers to be six times more likely than an event affecting property.

“Reinsurance capacity is poised to support growth in the global cyber insurance market, which is expected to reach $24 billion by 2029, up from around $15 billion today. The cyber reinsurance market is forecast to grow from $6 billion GWP to $9 billion by 2029,” the report said.

Aon highlighted that headwinds for the market include rate reductions in the underlying insurance market that are beginning to narrow profit margins.

“Aon’s analysis of recent cyber claims has shown that cyber losses remain broadly in line with expectations and pricing, suggesting that cyber security and risk management controls sought by insurers provide a higher degree of protection for the insured population,” its report said.