A new report released by Guy Carpenter examines the cyber reinsurance market by modeling potential global loss events.
A 1-in-200-year event has the potential to produce damages between $15.6 and $33.4 billion, and a 1-50-year event could lead to potential damages in the range of $5.5-$24.4 billion, the report says.
“Through the Looking Glass: Interrogating the Key Numbers Behind Today’s Cyber Market” examines the evolution of the cyber market, assesses the size and scope of the industry, and provides a view of the potential scale of a global cyber industry loss.
Guy Carpenter estimates the U.S.-domiciled cyber market currently stands at approximately $9 billion, with the non-U.S. market totaling approximately $5 billion. While the majority of global premium is still generated by U.S.-focused carriers, the UK and European markets have seen accelerated growth, the report noted.
The possibility of a global industry event loss was examined across three cyber modeling platforms. To model the loss, Guy Carpenter leveraged its own data related to nearly 2 million cyber policies. The loss scenarios used spanned cloud, data theft and ransomware/malware events.
These variations in estimates from the three platforms are driven by scenario interpretation, different views of event footprints and the analysis of historic data points, the report noted.
The U.S. market segment constitutes approximately two-thirds of the global total loss, the report found, largely due to its broader market penetration and is closely aligned with the premium splits between territories.
Model variations were surprisingly greater at lower-return periods—”a factor attributed to a greater need to interrogate the takeaways from precedents and ‘counterfactuals’ to drive better consensus,” the Guy Carpenter analysis stated.
“The improvements to data quality and nimbleness of the cyber models are instrumental in continuing to attract capital to the cyber market,” stated Erica Davis, global co-head of Cyber, Guy Carpenter.
“As the models continue to evolve, reinsurance buyers and sellers will be able to hone in on what truly differentiates each portfolio and more accurately identify price and trade key catastrophe risk,” she added. “As structures evolve to laser out catastrophe events, reinsurance buyers will have more choice in how they manage their portfolios and the diversity that arises from divergent buying strategies will expand the opportunities for capital to flow into the market, thus feeding its ongoing growth.”
Market impact from a significant cyber loss is not unexpected given the industry’s resilience to greater losses from other classes, according to Anthony Cordonnier, global co-head of Cyber, Guy Carpenter.
“In most cases, these [significant cyber losses] should not be insurmountable,” he added, noting a prudent course of action while growing the cyber insurance market would be to apply commensurate traditional and alternative capacity.