Cyber reinsurance
Transfer of cyber risk from insurers to reinsurers, dominated by quota share because accumulation cannot yet be modeled well enough to price catastrophe treaties widely.
Cyber reinsurance has a singular structure. In most property lines, insurers retain frequency and cede the peak, through excess of loss treaties that protect them against catastrophes. In cyber, the ceded share is much higher, around half of premiums according to market estimates, and it runs mostly through quota share, where the reinsurer shares every loss and every premium in a fixed proportion. This preference reflects the state of knowledge: for lack of accumulation models considered reliable, reinsurers prefer to follow the insurer's fortunes rather than price a catastrophe layer in isolation whose probability they measure poorly. Quota share also brings capital and expertise to insurers whose cyber growth outpaces their equity. Since 2022 the market has been developing per-event excess of loss treaties and cyber catastrophe bonds, the first 144A issues dating from 2023. Their prerequisite is a precise definition of the cyber event and war and infrastructure exclusions aligned between direct policies and treaties, so that the accumulation transferred is the one that was measured.
Textbook case: an insurer writing 100 million euros of cyber premium cedes 50 percent on a quota share basis, in exchange for a reinsurance commission covering its acquisition and administration costs. It also buys a per-event excess of loss of 40 million in excess of 20 million, to protect itself against an accumulation the quota share leaves half on its own account.
Follow the research
One letter a week. First, the week's underwriting note, when one is published: a dated, argued decision, signed by Paul Bernardski. Then what the observatory published on cyber risk, political risk and insurance. No account, no tracking.
No spam, one-click unsubscribe, no data ever sold.