Lockton Re: Time is right for cyber insurance-linked securities

The cyber insurance market continues to grow dramatically, with data and understanding of the peril developing in recent years.

Among the current cyber trends, Lockton Re’s latest report – released in partnership with CyberCube Analytics and Envelop Risk – claims that now is the right time for cyber insurance-linked securities (ILS) to succeed.

“The mechanisms and methodology behind cyber modelling are becoming better understood, and the strength of the data and frameworks being utilised is increasing all the time, meaning the potential for cyber ILS investments can be leveraged to play a critical role in the unlocking capacity required to continue developing the wider cyber insurance market,” said Oliver Brew, lead author of the report and London cyber practice leader for Lockton Re.

Lockton Re’s cyber report – other findings

The report has a positive forecast on cyber risk by ILS investors.

Brittany Baker, co-author of the report and vice president of solution consulting at CyberCube, revealed that ILS investors have become more comfortable with cyber risk, although further education is needed on how cyber models work.

“Market-leading participants are increasingly demanding enhanced exposure management reporting that allows for more in-depth business intelligence reporting and more sophisticated strategic decision-making,” Baker said.

David Ross, executive vice president of ILS & capital at Envelop Risk, added: “There are compelling arguments that the time is right for investors to support cyber ILS. The class is in a secular hard market driven by increasing digitisation and growing insurance penetration. Those with access to data and a modelling advantage can build well-diversified and profitable portfolios to meet investor risk-return preferences. Structures exist to manage capital efficiently without dilution of returns from excessive collateral trapping.”