German cyber MGA Cogitanda reportedly files for insolvency

German risk managers will be concerned to hear that cyber MGA Cogitanda has reportedly informed its shareholders this week that the board wants to file for insolvency “immediately”.

Local press reports that the company blamed the collapse on an “extraordinarily strong decline in commission income”.

It was only in June that Cogitanda announced it had broadened its offering to include larger corporates from the German and Austria markets with fresh backing from Lloyd’s, to add to its existing capital from leading German insurers.

The group announced that it had increased its offering for companies with annual revenues of up to $250m from the previous limit of $100m. The capacity was provided by Lloyd’s syndicate IQUW and Everest Insurance.

The capacity for existing customers with annual revenues up to $100m was provided by German insurers Württembergische, SV Sparkassenversicherung and Versicherungskammer Bayern.

But the expansion was short-lived as CEO Jens Lison was apparently unable to obtain further capital commitments of €14m that would have secured the company’s continued existence, according to German insurance news service Versicherungsmonitor.

Cogitanda reportedly said that it wants to coordinate further cooperation with the risk bearers and clarify how the contract portfolios will be processed. Business partners and customers should be informed about the next steps as quickly as possible, it allegedly said.

The group suffered a shock in November last year when Jörg Wälder, Cogitanda founder and CEO, died at the age of just 60.

Brokers in the German market are reportedly unhappy with the way the reported insolvency has been handled as they received no direct news from Cogitanda itself and had to learn about the company’s collapse in the trade press.

But as Cogitanda apparently exits the cyber stage in Germany, rival MGA Baobab is reportedly beefing up its capacity, with possibly up to €500m in fresh Lloyd’s backing so it can expand into the larger corporate space to add to its existing core SME business.

Baobab was launched in early 2022 with a $4.2m pre-seed financing round led by Project A Ventures and €5m of capacity from Zurich for SMEs with turnover up to €100m.

Co-founder Vincenz Klemm said at the time that he wanted to expand the MGA’s presence with major brokers and become the market leader for cyber insurance in Europe.

Klemm explained in a recent statement on LinkedIn: “It has taken some time, but I am proud to announce that we at Baobab Insurance are now significantly expanding our cyber offering, both in terms of sum insured and revenue segment, through the capacity of Argenta Syndicate Management Ltd, Tokio Marine Kiln and Talbot Underwriting.”

Earlier this year, the German insurance supervisor BaFin issued a warning to the insurance market about the cyber line. It said that there is strong demand and growth but also profitability challenges, in what remains a dynamic line with still-limited loss history.

“BaFin has now conducted its second survey among insurers on the cyber insurance business. The results show that the market for cyber policies is growing rapidly. But business is not always profitable. BaFin therefore recommends insurers take a prudent approach in their rate making and ensure appropriate reinsurance,” stated the supervisor.

It found a perilous and volatile picture from a combined ratio perspective for German standalone cyber insurance. “Cyber insurance business is not always profitable,” stressed the BaFin.

It said that the gross combined ratio for standalone direct cyber insurance business in 2020 was 76.5%, flying up to 111.6% in 2021 and back down again to 88.2% in 2022. Over the same period, the net combined ratio rose from 59.9% in 2020 to 96.5% in 2021 and again up to 106% in 2022.

The German digital association Bitkom estimates that losses to the German economy from data theft, espionage and sabotage reaches over €200bn per year. It is perhaps no surprise then that, according to BaFin’s survey of 178 German cyber insurers, cyber’s retention ratio fell from 35.7% in 2020 to 32.6% in 2021 and 26.5% in 2022.

“The increase in the number of cyberattacks resulted in high loss expenditures in Germany in 2021. These are clearly reflected in the gross combined ratio of more than 100%. In 2022, the gross combined ratio declined somewhat. At the same time, however, the net combined ratio, which also takes reinsurance into account, climbed noticeably. The retention of primary insurers fell further in the reporting period and amounted to 26.5% in 2022,” noted BaFin.

The BaFin’s caution on cyber line was echoed by the German insurance association (GDV) in September as it published its latest statistics.

The GDV reported that cyber claims increased significantly in 2023 and almost completely wiped out premium income as the sector reported an overall combined ratio of 97%, up sharply from 77.7% in 2022.

“Cyber insurance claims increased by almost 50% to €180m compared to 2022,” said Jörg Asmussen, general manager of the association.

“The IT threat situation in Germany has worsened again,” he continued. He said that around 4,000 hacker attacks were reported to cyber insurers last year – 18.7% more than in 2022.

It seems likely, therefore, that while German businesses may not be facing another dramatic capacity crunch for cyber risk as during the recent hard market, conditions may toughen in coming renewals as reinsurers, in particular, react to these poor figures.