More cyber ILS capacity predicted in 2023: CyberCube

There are expected to be an increasing number of partnerships on cyber risk underwriting with insurance-linked securities (ILS) fund managers in 2023, according to cyber modelling specialist CyberCube.

As a result, cyber risk capacity from the ILS market is predicted to increase, with the reinsurance market value chain working with ILS specialists to help them unlock this opportunity.

As a result, CyberCube predicts we’ll see a cyber reinsurance capacity increase, with third-party capital and ILS sources expected to buoy this area of the market.

A lack of cyber reinsurance capacity has been blamed as one factor holding back the growth and further development of the cyber insurance markets potential.

Of course, there has been a general lack of trust in cyber data and loss information, which this has held back reinsurance capital from entering the space in recent years.

With cyber risk models maturing all the time, the opportunity for ILS players to bring reinsurance capital to cyber risks is increasing all the time and CyberCube expects these efforts to accelerate.

CyberCube CEO Pascal Millaire believes that cyber insurance can become one of the largest lines in the Property & Casualty (P&C) insurance industry in the decades to come.

But, he explained that this will only be the case if there is a deep partnership across the value chain with a cross-section of industry participants.

“The insurance industry will work together in many different ways to help power the evolution of the cyber insurance market toward a more mature level, and deliver better value for the end customer,” Millaire said.

“In the coming year, underwriters and brokers will come under greater pressure to concentrate on value-added tasks, rather than spend their time on manual data entry or low-value screening.

“The insurance community will also strengthen its ties with alternative capital providers to facilitate the growth of the ILS market.

“The reinsurance value chain will work together with ILS fund managers to bring new cyber reinsurance capacity to this market in 2023.”

Overall, the insurance market is predicted to transition from P&C to Property, Casualty & Cyber (PC&C) by the modeller.

In order to achieve this, capacity will be required and partnerships with ILS funds can be a key source of that, the company believes.

ILS capacity backing cyber risks remains limited at this time, but efforts are in motion to deliver on the first cyber catastrophe bonds, as well as to unlock more capital markets capacity to back cyber retrocessional reinsurance needs.

As these efforts continue they will add to the growing pool of cyber risk capacity, helping to expand the market.

However, it’s important to add that it’s going to take capacity from across the market, to provide the level of risk capital required to enable the cyber insurance market to reach its potential.

Without deeper capacity from traditional insurance and reinsurance sources, we won’t see ILS fund filling all of the gaps that are evident in the cyber marketplace, as investors want to see traditional players buying into the models and data available as well.