A Guy Carpenter report reveals more than three-fold increase in cyber insurance market value in four years, and models one-in-50 and one-in-200-year event cyber loss scenarios, topping out at a $33.4bn estimated potential market loss.

Cyber risk

A new report from Guy Carpenter states that there has been a ‘significant increase’ in the value of the US and non-US domiciled cyber markets.

The reinsurance broker’s report, Through the Looking Glass: Interrogating the Key Numbers Behind Today’s Cyber Market, states that the US-domiciled cyber market now stands at $9bn, while its non-US equivalent stands at just over half of that at $5bn.

The previous figure for the US market, which Guy Carpenter released four years ago, stood at $2.6bn.

Erica Davis, global co-head of cyber at Guy Carpenter, said: “The improvements to data quality and nimbleness of the cyber models are instrumental in continuing to attract capital to the cyber market. 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.”

Modellling cyber losses

The report also examines the quantum of a possible global industry event loss across three prominent cyber modeling platforms.

To model the loss, Guy Carpenter leveraged its proprietary Cyber Data Lake which encompasses data relating to nearly two million cyber policies. The loss scenarios used spanned cloud, data theft and ransomware/malware events.

According to the study, the three platforms produced a modelled loss range of between $15.6bn and $33.4bn for a 1:200-year global loss event.

For a 1:50-year event, the modeled loss range was between $5.5bn and $24.4bn. These variations are driven by scenario interpretation, different views of event footprints, and the analysis of historic data points.

Interrogating the regional splits more deeply, the US segment constitutes approximately two thirds of the global total loss. This is due in large part to its broader market penetration and is closely aligned with the premium splits between territories.

The report noted that 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.

Anthony Cordonnier, global co-head of cyber at Guy Carpenter, said: “There is no question that modeled losses from a significant cyber event would impact the market. However, given the industry’s resilience to significantly greater losses from other classes, in most cases these should not be insurmountable.”

He added: “Industry stakeholders recognize opportunities for continued growth and performance in this sector. As we contemplate what lies ahead, the focus must continue to be on further activating this valuable product category with commensurate traditional and alternative capacity.”