MGAs under close scrutiny from reinsurers

While there was abundant supply for cedants at the 1.1 renewals, reinsurers were concerned about the profitability of underlying business, with MGAs and new insurers receiving close scrutiny.

Aon commented in its Reinsurance Market Dynamics report on the 1 January 2025 renewals that one factor during discussions was that reinsurers are mindful of conditions in the underlying market.

“Cyber insurance pricing experienced a steep decline since Q1 2022 due to a softening market and improved cyber security controls,” the report said.

“Rates continued to reduce in 2024, although reductions moderated towards the end of the year. Pricing competition coincided with a rebound in ransomware activity and complex claims development for incidents that occurred prior to 2023. The market will be focused on profitability despite these challenges in 2024.”

Talking to Cyber Risk Insurer, Paul Preston, senior managing director – US cyber reinsurance broker at Aon, noted that the underlying business continues to be profitable.

This has made cedants more comfortable with reducing their cessions, a trend that continued at 1.1. There are outliers, however, with market sources indicating that one of the larger carriers purchased more quota share cover at the renewal.

Preston highlighted some signs of concern that recent years may not have been as profitable as assumed.

“The reinsurance market is concerned 2022 and 2023 appear to be trending a bit hotter than initially anticipated,” he said.

“This could be influencing buying decisions, with cedants taking advantage of the current market conditions and trying to get ahead of what might be a transitioning market. That’s pure speculation, but it's rational.”

However, Preston also noted concern among reinsurers over a perception that some carriers have loosened their data and control requirement.

More capacity in large account space

Aon said that there was ample capacity overall at 1.1 and reinsurance conditions were favourable for clients at 1.1.

However, this was truer for some types of buyers than for others.

David Grigg, executive managing director for the US cyber team at Aon’s Reinsurance Solutions, commented: “A vibrant, dynamic market is very true for established renewal business and for established players. However, it can be a different discussion on new treaty business and particularly MGA-driven business.”

Preston elaborated that many reinsurers have an abundance of large account business in their portfolios and continue to look for opportunities to diversify outside that segment of the industry. But he continued: “So a new entrant into the large account space, whether it’s an MGA or an insurance carrier, just adds to reinsurers’ existing aggregates.

“Is there capacity out there? Yes. Do deals get done? Yes. But the economics can be challenging. There's definitely a start-up factor that’s being applied often resulting in less favourable economics for start-ups when compared with established players – with MGAs subject to additional scrutiny.”

Preston also noted some stabilisation in insurance pricing.

“We’re trending away from double-digit decreases and most likely into the single digits. Anecdotally, there seemed to be a cohort of retail business that renewed flat to slightly up at 1.1. We might be nearing the bottom of this market. Maybe that's an observation for the second half of 2025,” he said.

Grigg added: “I think we're probably getting back to where floor pricing was in late ’22/early ’23. And the concern around development in ’22 and ’23 I think will hopefully reinforce the importance of maintaining underwriting discipline.”

When asked whether new entrants will continue to enter the cyber market, market sources have suggested there is at least one insurance carrier that has been hiring for the cyber market.

“Some senior cyber insurance business unit leaders are migrating to new opportunities in the space, including joining MGAs,” he added. “So you're going to be seeing continued interest in the direct side across all segments. The upshot of this trend is the expectation that capacity is going to expand.”

Grigg added: “We are waiting to see an A+ rated new entrant come into the space, which would help to drive the market and provide additional capacity.”

He said that a big challenge on the direct and retail side is how to innovate and create more demand.

“At the moment we're looking at a relatively static commercial market. Certainly the Fortune 1000 buyers, the large account buyers, are already buying. Will they take advantage of any softening and buy more limit? Absolutely, but that's not going to move the needle.

“So to me the challenge to the retail side of the house is: what are you thinking about as strategies and innovations to grow the market?”