Gallagher Re Launches Cyber Risk Adjusted Rating Index to Track Reinsurance Rates

Gallagher Re, the reinsurance brokerage unit of Arthur J. Gallagher & Co., announced it has launched a Cyber Risk Adjusted Rating (RAR) Index, which is designed to measure the change in reinsurance prices adjusted for expected changes to the underlying level of cyber risk.

Unlike property where limit is directly correlated to risk, a cyber reinsurance rating index requires Gallagher Re to use its proprietary view of risk (VoR), which includes considerations for underlying rate change, loss trend, selection of volatility parameters and catastrophe model selection, the broker said.

“While it has performed well in recent years, the cyber market continues to grow, and the risk landscape is evolving rapidly,” commented Ian Newman, global head of Cyber, in a statement.

“Cyber is also a [catastrophe] and systemically exposed class and reinsurance buyers are constantly looking for suitable and effectively priced non-proportional protection,” he added. “Gallagher Re therefore believe that over the long-term, an index of the Cyber Aggregate Excess of Loss market will provide a useful and insightful barometer as to the state of the cyber reinsurance rating environment.”

Gallagher Re detailed trends in the cyber aggregate solutions market:

• Both per occurrence and per risk solutions are expected to become an increasingly prominent part of the non-proportional risk transfer landscape.
• Isolating and protecting purely against cyber CAT losses via event/occurrence based solutions remains a nascent, highly nuanced and inconsistently priced part of the reinsurance product landscape. Gallagher Re explained the inconsistency is due to the variation in event definitions and coverage as well as differences in views of tail-risk between cedents and reinsurers, all compounded by a lack of historical event loss data points and a rapidly evolving re/insurance market.
• Since their introduction in approximately 2015, aggregate stop-loss and aggregate excess of loss structures have become the non-proportional solution of choice for the majority of cyber reinsurance buyers.
• Well-designed aggregate products provide the optimal solution for those cedents looking for asymmetric protection against either a highly adverse loss trend (such as that seen with the rise of ransomware in the period 2018-2021), a frequency of event losses, and/or a single catastrophic or systemic event.
• The aggregate market also continues to be the most well capitalized part of the non-proportional cyber reinsurance market and experiences the least variation in pricing views across quoting reinsurance market participants making it the most appropriate basis for an industry wide pricing index.

Source: Gallagher Re

Topics Cyber New Markets Reinsurance A.J. Gallagher