Speaking this afternoon during a renewals focused panel discussion hosted by Aon’s Reinsurance Solutions, Sven Althoff, Member of the Executive Board for P&C at Hannover Re, explained that introducing event-based wordings to cyber insurance could open the doors to broader capital markets and ILS involvement.
Althoff explained to the panel discussion moderator, Andy Marcell, Aon’s CEO of Risk Capital, that the evolution of cyber insurance as a class of business will eventually make the risk more palatable to insurance-linked securities (ILS) markets.
“The industry is selling more of the product year-on-year, the projections are trending very positive,” Althoff explained.
But added that, “Given the systemic nature of the product, there’s of course only so much the reinsurers will be able to take on.”
He continued to state, “It will evolve over time, given the risk bearing capability of the industry, but we see that over the next years there will be a bigger push for event based wordings.
“So far, there is not a lot of consensus in the market yet, what that language should look like, but that will make progress.
“Once this is a more common product that is placed on the cyber side, it will open the door also to the wider capital market to be introduced into cyber protections.”
Hannover Re has already taken a step into transferring cyber risk to the capital markets through its $100 million quota share retrocessional reinsurance arrangement with specialist asset manager Stone Ridge.
The reinsurer’s staff have previously told us that the next step is hoped to be a first cyber catastrophe bond for Hannover Re.
Adding event-based wording clauses will increase the ability for ILS investors to understand what exposure lies within portfolios of cyber risk and also make them more suited to excess-of-loss protection, so bringing them increasingly in-line with the cat bond market as well.
Althoff of Hannover Re said, “I think that’s going to be a natural next step for this class, to also open it more broadly to the ILS space by finding the right structures in order to fit with their risk appetite.
“That could be an important next step to satisfy the ever increasing demand.”