Cyber insurance is still the fastest-growing subsector of the global insurance market. Global cyber insurance premiums reached about $12 billion in 2022, and in S&P Global Ratings’ view, are likely to increase by an average 25%-30% per year to about $23 billion by 2025.
The sustainable expansion of the cyber insurance market is heavily reliant on reinsurance, as indicated by a survey of global multiline insurers (GMIs) and global reinsurers conducted by S&P Global Ratings.
Reinsurance is deemed essential for providing the necessary capital and managing the accumulating risk associated with cyber-related claims.
S&P Global Ratings’ credit analyst, Manuel Adam, emphasised, “Cyber insurance stands out as the most rapidly expanding subset within the global insurance landscape. The security of this segment largely hinges on the protection offered by reinsurance, making reinsurers a pivotal factor in the market’s enduring growth.”
The vulnerability of insurers and reinsurers to cyberattacks on their operations has not gone unnoticed. Disruptions in services or breaches of data could directly impact their financial standings and even their capital reserves.
To better understand the potential implications, S&P Global Ratings analysed cyber exposure data employing the Cyence cyber risk model developed by cybersecurity specialist Guidewire.
The analysis unveiled that on average, both GMIs and globally rated reinsurers possess the resilience to withstand a direct cyberattack on their organizations, with minimal effects on capital.
However, certain insurers could face substantial earnings setbacks from such attacks. In a case from the sample, a notable insurer could potentially experience a significant cyber tail loss, equivalent to around 90% of average annual earnings over a five-year span.
This statistic underscores that some insurers might encounter cyber losses exceeding the sample average due to varying profitability levels or inherent deficiencies in managing cyber risk.
Consequently, their earnings might be strained, and in the long term, their capacity to build capital buffers could diminish, potentially weakening their creditworthiness.
As the cyber insurance market matures, the corresponding cyber reinsurance sector is expected to evolve in tandem. While larger reinsurers have indicated their near-maximum capacities, other players within the reinsurance landscape are actively exploring avenues to augment their exposure to cyber risk.
This strategic move would foster a responsible expansion of the market, characterized by a diverse array of reinsurers supporting its growth.