Cyber re/insurance capital need to top $100bn, ILS a vital source: CyberCube

New growth projections for the global cyber insurance market suggest a massive need for reinsurance and risk capital, of which the insurance-linked securities (ILS) market is expected to become a key source, according to CyberCube.

The specialist cyber risk modelling firm foresees the US standalone cyber insurance market potentially reaching as much as $45 billion in premium by 2034, which would represent a five-fold increase from today.

Cyber risk “remains a capital-intensive peril that requires structural innovation” the risk modeller explains and the sector is set to require access to all of the capital sources available.

CyberCube modeled three compound annual growth rate (CAGR) factors for the US insurance industry looking out to 2034.

Growth of 10% growth results in $17 billion of premium, 20% growth leads to $45 billion of premium and 30% growth creating $109 billion of US cyber premium, the company explains.

For reference, CyberCube’s US Industry Exposure Database (IED) puts US standalone premium in 2023 at $8 billion.

The company says that cyber will become a peak peril, noting that at a 20% CAGR, the amount of capital required to manage a 1-in-250 year loss would be $121 billion.

“The cyber (re)insurance market will need to substantially increase capital to enable this growth potential, with increases needed from multiple sources including insurers, reinsurers, capital markets, and potentially private-public partnerships,” CyberCube said.

Alex Tenenbaum, Director of Services and lead author of the report, commented, “The cyber insurance market is set for outsized growth compared with other lines of P&C insurance over the coming 10 years. Structural changes are required to support sustainable growth. Some of these changes are starting to emerge and will require fuel to accelerate their growth – for example, penetration into the small business space and the emergence of the cyber Insurance-Linked Securities market. Some are still very much in their infancy and will require broader market collaboration to unlock, such as public-private partnerships that work for both sides.”

Rebecca Bole, Head of Industry Engagement, added, “The property & casualty (P&C) insurance sector stands at the threshold of a once-in-a-generation opportunity to build a sustainable market for cyber risk transfer. This enables societal resilience to one of the peak risks facing economies today.”

With the capital markets now open to cyber risk and such significant growth rates for the class of business projected, the opportunity for ILS managers and investors that have been able to get comfortable with the new peril could be significant.

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