The broker used a Monte Carlo briefing and cyber risk report to note a divergence of appetites between reinsurers comfortable with first party short tail risks and third party long tail risks.


Lockton Re hosted a Monte Carlo RVS briefing to highlight the need for cyber insurance product clarity and to simplify cyber reinsurance.

The reinsurance broker launched a new report “The All Risk Cyber (ARC) Challenge: An Assessment to Simplify Cyber Reinsurance”.

The report focuses on the problem of cyber insurance products commingling distinct first and third party risks, as well as systemic risks.

“The current market suffers from a finite supply of reinsurance capacity and a key reason for this is the divergence of appetite between reinsurers comfortable with short tail first party and long tail third party risks,” said Patrick Bousfield, a senior Lockton Re broker in Bermuda and chair of the Lockton Cyber Centre.

The cyber market continues to mature and grow dramatically, the broker’s report noted.

However, the global “all risk aggregate” reinsurance product continues to trail capacity demand and limits the cyber market’s access to the wider specialised reinsurance market.

The report outlined a number of the benefits to breaking the peril into requisite parts, with a particular focus on the differences in how first party and third party risks are handled in the insurance value chain.

Demand for good quality data is another focus, the broker emphasised. This approach can potentially improve the access to capital and expertise as well as the handling of potential claims and the related tail risk development in Cyber.

Oliver Brew, London cyber practice leader, Lockton Re, said: “Separating first party cyber reinsurance where possible can increase participation, making it easier to build new capacity aligned with varied reinsurance appetites.

“It’s important to remember that the specialisation within reinsurance enables the separate perils to be treated differently by distinct parts of the market,” he added.

Separating first and third party risk for reinsurance purposes allows clients to utilise two pools of intellectual knowledge and reinsurance capacity aggregate, the broker said.

Crucially, this would allow access to more capital, the intermediary suggested, because the standalone cyber divisions and the professional lines divisions of reinsurance companies have separate loss development profiles and are established to support independent assessment.

The reinsurance broker suggested it had already seen the benefit of this approach with some key market participants.

Brew said: “Insurance carriers can also have open and frank conversations with insurance buyers and brokers about the impact that risk controls have on the first party and third party pricing for the original business.”

This product clarity could also make it easier to package and trade Cyber risks in the secondary and alternative market, encouraging more capital to participate in the market.

Bousfield added: “The narrower reinsurance coverage means less tail risk uncertainty making it easier for additional capacity.

“When the risk is as dynamic as cyber, man-made in nature and thus rapidly changing, insurance policies and associated risk mitigation is forever catching up with reality, but this is a real opportunity to get ahead and push the industry forward.”

To read the Lockton Re report, click here