By Michael Loney

June 27 - (The Insurer) - Aon has developed a “first of its kind” cyber reinsurance offering called Aon Surge Stop Loss that has no event definition, and completed its first placement of the product at June 1 for Arch Insurance International.

Rory Egan, head of cyber and analytics for Global ReSpecialty at Aon’s Reinsurance Solutions, told Cyber Risk Insurer the product is aimed at overcoming some of the challenges certain buyers and sellers have with the existing suite of non-proportional cyber products.

“The market has made great strides in recent years with the development of cyber catastrophe bonds, and also traditional cyber cat reinsurance, and this product provides a further solution in the cyber sector but works somewhat differently in that the buyer and seller don’t have to agree on what is and is not a cyber event,” he said.

An example of this could be where there is a vulnerability that has the potential to become a systemic event, but a threat actor might exploit that through targeted attacks or through one widespread attack.

“Depending on the definition, some areas could be classified as a cat and others not as a cat,” said Egan.

In comparison, the surge stop-loss product focuses solely on the insurance losses notified within a predetermined temporal constraint, such as 30, 60 or 90 days. The absence of an event definition eliminates the basis risk of losses intended to be covered being deemed to not qualify for recovery.

“It’s a non-proportional product, so X dollars or loss ratio over Y,” Egan said. “We look at the historical losses throughout the year to understand the normal level of attritional expected losses. We set an attachment point ‘above the noise’, so the only way that this reinsurance would attach and recoveries would occur is if there's an abnormal surge in loss activity over a short time period,” said Egan.

Quota share is still the most sizeable form of cyber reinsurance, but its share is reducing over time as carriers seek to keep more of the profits net for themselves and retain more tail risk as they get more comfortable with it.

The cyber reinsurance market has evolved from quota share to increasing use of non-proportional covers such as aggregate excess of loss/stop loss, cat/event/occurrence reinsurance and cat bonds.

With portfolios improving, some buyers see less likelihood of their aggregate stop losses paying out now and may not want the event definitions that are part of cyber cat reinsurance and cyber cat bonds.

“Cyber buyers’ portfolios have become more balanced than they were in the past, so it's harder for them to imagine having such a bad year that they would get recoveries on those annual aggregate stop losses, unless a truly catastrophic event occurs that we haven’t seen thus far,” Egan said.

Egan said that similar to cat/event-based reinsurance and cat bonds, the surge stop-loss product can also attach closer to the risk than aggregate excess-of-loss cover.

He describes the new surge stop-loss product as “an important innovation and evolution for the cyber reinsurance market”.

“This is addressing what the market needs, which is coverage for these cat events which are happening quite frequently, irrespective of the underlying cause,” Egan said.

“We see about three notable cat events every year. Last year we had CrowdStrike, we had CDK, we had Change Healthcare. So these events are happening, they’re all different to one another in nature, yet in aggregate they're not threatening the attachment points on those aggregate stop losses,” he continued.

Egan described the placement for Arch as “a first of its kind cyber reinsurance transaction” and suggested it has proved the concept works for buyers and sellers.

The executive said that multiple reinsurers supported the transaction, which he said was “relatively small in nature in terms of the capacity”.

“Ultimately, we see it as being complementary to the existing cyber products. The capacity we can build, the support we can get, is aligned to the traditional style placements that have existed,” he said.

“As a new solution, we think that it will solve an area of client need and can become as large as the other products.”

The launch of the surge stop loss product comes amid growing concern about systemic cyber risk. Aon’s 2025 Cyber Risk Report warns of the ‘Faustian pact’ created by software supply chains and cloud dependencies, where a single vulnerability can cascade across industries, noting that supply chain issues contributed to 28.5% of reported cyber incidents in 2024. This underscores the need for solutions that respond to the reality of interconnected exposures.