ILS can help cover cyber risk
Getting the capital markets involved in the coverage of cyber risk would be helpful to cover this peril, Hannover Re CEO Ulrich Wallin said during a press conference during the Monte Carlo Rendez-Vous.
Cession rates on cyber are higher than on the traditional property/casualty classes because cyber as a peril is still in the developing stage, Wallin said. As a result, reinsurers have a relatively high penetration in the cyber segment, he noted.
Hannover Re is experiencing high demand for cyber cover and it is the company’s fastest growth area. The reinsurer is working largely with existing cedants operating in the commercial field who want to offer cyber products to the market.
The exposures and accumulation exposures are difficult to quantify and as a result cedants want to reinsure large parts of the business, Wallin said, noting that he expects retentions to increase once the business matures.
Cyber is a challenging market for reinsurers because the exposure is constantly changing, Wallin said. One cannot escape covering cyber exposure because of silent exposure included in traditional property liability cover, he explained. In addition, there is the accumulation of the specific cyber risk and silent cyber.
“We think that the development of a specific cyber policy is positive because at least you actively evaluate the exposure on the specific policies,” Wallin said.
There is uncertainty on the expected losses and exposure on cyber, but Hannover Re thinks that it is for exactly such perils that reinsurers should support cedants, so they can offer products which are servicing a clear demand from their clients.
There is still sufficient reinsurance capacity for most of the cyber placements, but insurance-linked securities (ILS) could be a helpful tool in insuring cyber.
“If you look at the potential accumulation between specific and silent cyber, you can imagine extremely expensive scenarios,” Wallin said.
“Such an event would need capacity that is clearly beyond the risk appetite of the current reinsurance market and the net retentions of the insurance market, so the ILS market could be extremely helpful,” he concluded.
