From cyber war exclusions to state-backed reinsurance, we offer our international experts' predictions on the opportunities and challenges that the reinsurance market may face in the coming year and beyond.
1. Cyber war exclusions will require fresh thinking globally
The potential impact of state-sponsored cyber attacks against critical infrastructure has focused global attention on the need for up to date cyber war exclusions. This reflects concerns that cyber war represents a systemic risk which the market should limit or exclude. In the UK, the Lloyd's Market Association is reviewing the prevailing war exclusion, NMA464, drafted long before cyber risk became a daily part of business life. This had been considered no longer fit for purpose even before the NotPetya incident in 2017. Drafting the new exclusion has raised challenging issues, including the attribution of any attack, and debate is likely to rumble on, with many academic papers highlighting different possible solutions. Accommodating the competing needs of insureds, insurers and reinsurer is unlikely to lead to a single clause being universally adopted. Given the evolving nature of cyber risk, further clauses adopting different approaches, or adding further refinements, will be needed.
2. Brexit leads to increased reinsurance activity
At the time of writing, the details of post-Brexit arrangements across many financial services remain to be resolved. There will be key issues to consider in a reinsurance contract which were largely irrelevant during the passporting era. In particular, UK reinsurers accepting risks from the EU, or EU reinsurers protecting business in the UK, will need to ensure their underwriting and claims activities do not cross borders. Claims control is often assumed by reinsurers, in both facultative and treaty reinsurance. This is a single example of an activity that may no longer be permissible. Reinsurance contracts should provide for Brexit as best they can, with clauses providing for contracts to be revised if necessary.
3. State-backed reinsurance solutions likely to expand
The COVID-19 pandemic has heightened discussions about the role of the state in supporting the (re) insurance market to provide solutions to mega-risks that are beyond the scope of the private insurance market to reinsure. The UK Treasury produced a discussion document just before lockdown in March seeking to bring together the current fragmented approach to risks that fall beyond the capabilities of commercial (re)insurers to absorb. Long-term export credits, terrorism and flooding are already subject to schemes ultimately underwritten by Government. Cyber was already being widely discussed as the next risk that would need a similar solution and now pandemics have been added to the list. The discussions could lead to the consolidation of state support into a single entity