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Reinsurers eye cyber potential, remain wary of expansive risks

Posted On: Oct. 5, 2022 12:00 AM CST

cyber market

MONTE CARLO, Monaco — The market for cyber liability reinsurance is stable but is unlikely to grow significantly until more sophisticated underwriting tools are developed to assess the risks, reinsurance leaders say.

While the world’s largest reinsurers plan to maintain their levels of cyber reinsurance premium, better computer models to measure exposures are needed, they said during presentations and meetings at the Rendez-Vous de Septembre reinsurance meeting in Monte Carlo last month. 

In 2021, the worldwide cyber insurance market premium was close to $10 billion, and by 2025 the market should grow to more than $20 billion as the world becomes more dependent on digital processes, said Torsten Jeworrek, chair of Munich Re’s reinsurance committee.

Mr. Jeworrek said the demand is there and that the reinsurance industry “might lose relevance” if it doesn’t have the “ambition” to meet it through products and services.

Recent loss experience, though, has led to a reduction in insurance capacity and increased prices, with cyber liability rates in the United States, the world’s biggest cyber market, increasing about 80% since 2020, Mr. Jeworrek said.

Munich Re recorded $1.4 billion in cyber liability premium in 2021, representing about a 14% market share, he said. 

SCOR SE’s cyber premium stands at about $200 million, which is a relatively small proportion of its overall $9 billion in premium, said Laurent Rousseau, CEO of the Paris-based reinsurer.

“The main reason for this lack of development has been uncertainty around what is our accumulation,” he said.

Reinsurers are unsure of probable maximum loss estimates because cyber risk is evolving so quickly, Mr. Rousseau said.

Hannover Re SE has about $550 million in cyber premium volume, said Silke Sehma, a member of the reinsurer’s executive board.

“In the future, we will be able to slightly grow, but for the time being we are fine with what we have,” she said.

Cyber limits have contracted, and insurers have significantly increased rates so the profitability of the portfolios is better, said Tim Gardner, New York-based global CEO of Lockton Re, a unit of Lockton Cos LLC. 

“I think reinsurers are pretty comfortable reinsuring the business, the problem is just capacity; we’re running out of capital to support the business,” he said.

Everest Re Group Ltd. is looking to grow its cyber book, said Jill Beggs, Warren, New Jersey-based head of North American reinsurance for the reinsurer.

“We want to be intentional about how we’re writing cyber, but we do think, given the changes in the rating environment, that there is an opportunity for us to deploy more capacity in the cyber market,” she said.

Everest recently hired former Nationwide Mutual Insurance Co. cyber underwriter Catherine Rudow to the newly created position of global head of cyber reinsurance. 

Demand for cyber reinsurance has grown as commercial and personal lines insurers expand their cyber premium, said David Priebe, New York-based chairman of Guy Carpenter & Co. LLC.

“One of the things we’re going to continue to work on is how do we develop more capacity for cyber. One of the keys to unlock that is having a greater understanding of modeling systemic cyber risk,” he said.

Improved modeling would also give capital markets investors more confidence in cyber risk assessment and provide more capacity via insurance-linked securities, he said.

Verisk Analytics Inc. has modeled cyber risk for about five years but earlier this year decided not to invest further in cyber models until the insurance market stabilizes, said Jay Guin, Boston-based executive vice president and chief research officer, extreme event solutions, at the catastrophe modeling company.

“Right now, the market is quite chaotic, because there are many companies that are reducing exposure or excluding the exposure, so we have taken a decision to observe for a while,” he said.

Denexus Inc. is piloting a cyber risk quantification tool for the renewable energy sector, said Jose Seara, CEO of the Sausalito, California-based cyber risk company.

The company has collected cyber risk data from a group of energy companies since 2020 and is working with insurers, reinsurers and ILS providers to build probability models, he said.

The company uses a cloud-based system, which incorporates blockchain technology, to enable the parties to securely share information on the risks, Mr. Seara said.