Cyber market eyes ILS: Guy Carpenter panel

The cyber insurance market has matured, but the industry will have to make a lot more progress on the modelling and accumulation limits to drag insurance-linked securities (ILS) to the game, key industry leaders agreed at a symposium during the Baden-Baden reinsurance conference hosted by Guy Carpenter.

Axis Re is ready to expand cyber from an add-on for select clients to a broader offering as it rolls out its strategy for moving fully into specialty casualty at the expense of property.

“We will look to expand into that space,” Axis Re chief executive officer Ann Haugh told the assembly. “We do have some exposure to date, mostly with strategic clients, but I think that will continue to expand as conditions look appropriate,” she said.

Market conditions appear to be edging towards a sweet spot between continued strong rate and emergent market maturity. Haugh cites cases where rates “start to drop off” for select client categories even as the “overall rate on cyber on the insurance side is still very strong”.

Hannover Re boasts of 10 years in cyber and claims “feeling comfortable at every stage of the market” but does warn that major hurdles remain to market maturity.

Hannover Re CEO Jean-Jacques Henchoz cited “some missing elements which are restraining this market from growing further.”

First on his list of examples is the very definition of a “cyber event” that will allow the industry to build accumulation exclusions.

The pace of learning and modelling improvements leaves Henchoz highly confident on eventual market maturity to equal traditional insurance lines and even attract alternative capital, albeit on a longer-term horizon.

“I can imagine, in the next 10 years, cyber bonds being issued,” he said.

“We need more capacity,” Massimo Reina, chief executive officer for Europe at Guy Carpenter, concurred. “Modelling is the key and overall we are making very substantial progress. Modelling on the systemic side of the risk is the key to the capital.”

For underwriters, much of the increased comfort comes not from the modelling, but from the insights and improved prevention garnered as the industry makes a parallel thrust into the cybersecurity services market, Hannover Re’s Henchoz added.

“The best underwriters in the cyber space are broadening their proposition: prevention cyber defence,” Henchoz said. “There is an opportunity for primary insurers to have a broader offer to companies and this gives us reinsurers the assurance that it has been based on thorough due diligence, although the threat is always changing.”