A first-of-its-kind study from reinsurance broker Howden Re, uses data from cyber underwriters’ modelled losses for insights into the industry’s market risk tolerance.

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Howden Re has released a report on the cyber reinsurance market, titled “Reframing Cyber Risk”.

The report urges a shift towards a more balanced view of risk between cyber versus other classes of business. It suggests a more nuanced approach to cyber exposure management is needed, with data indicating that the industry could, and should, bear more cyber risk than it currently does.

The reinsurance broker’s data show larger carriers assume a disproportionate amount of nat cat risk when compared with cyber, even though nat cat historically produces more significant losses – both in economic and insured terms.

By contrast, cedents with relatively smaller balance sheets are often markedly more exposed to cyber as a percentage of business mix, with several establishing themselves as leaders in this rapidly evolving market.

The report concludes that with continued investment in expertise, modelling and analytics, re/insurers can expect a more favourable and diversified risk-return profile from cyber reinsurance underwriting.

Key takeaways from the report:

  • Discourse on systemic cyber exposure often veers towards the catastrophic, drawing parallels with the most devastating natural disasters. However, the actual data and trends within the cyber re/insurance landscape to date paint a markedly different picture.
  • The frequency and impact of cyber events, while not negligible, are constrained by numerous factors, including the logistical complexity of orchestrating widespread cyber-attacks, advancements in cybersecurity, the intrinsic motivations of threat actors, and the diversified uptake of, and reliance on, different technologies by different profiles of insureds.
  • A critical insight from our analysis is the comparative hesitancy of cedents to underwrite cyber risk versus traditional nat cat risks. This is despite nat cat losses exceeded premiums in 4 years between 2017 and 2022, whereas cyber premiums have always exceeded losses in every high-profile cyber event over the same period.
  • The report calls for a more nuanced approach to cyber exposure management, with data indicating that the industry could, and should, bear more cyber risk than it currently does; and should use advanced risk assessment and modelling to balance opportunities with an informed view of vulnerabilities.

“Cyber risks consistently top the rankings of risk managers’ concerns,” said ,” said Luke Foord-Kelcey, global head of cyber, Howden Re.

“To stay relevant to those buyers of insurance, as an industry it is imperative that we embrace this class of business. This report identifies how carriers may assess their appetite for the cyber class of business to ensure they recognise the extent of the opportunities within the context of a more thorough understanding of the risks,” he said.

David Flandro, head of industry analysis and strategic advisory, Howden Re, said: “The maturing of the cyber market necessitates a thoughtful recalibration of how cyber risks are underwritten.

“A transition is necessary: from viewing cyber threats through a catastrophic lens, and instead recognising the competitive advantage that can be gained through more nuanced and informed risk analysis.”

Foord-Kelcey added: “Investing in cyber-specific expertise and leveraging refined risk models are key to navigating the complexities of cyber threats effectively.

“This approach will not only transform perceived vulnerabilities into competitive advantages, but also enable our clients to capitalise fully on the burgeoning opportunities in today’s digital landscape.”