Cyber catastrophe bond market – room for growth is considerable: Howden

There may be “considerable” room for growth within the cyber catastrophe bond market, as cyber insurers and reinsurers get increasingly comfortable with event-based excess-of-loss coverage options and use of quota shares within the cyber reinsurance space reduces, broking group Howden has said.

Commenting on the growing cyber insurance market, Howden noted that prospects look strong, helped by “a growing and increasingly diverse capital base.”

“This might be crucial because the market moves beyond existing premium pools to satisfy the demands of companies worldwide,” Howden noted.

Adding, “There have been numerous positive developments on the capital front over the past 12 months. Beyond plentiful supply on the direct side, conditions within the cyber reinsurance market have also improved, with pricing softening and capability greater than sufficient to satisfy demand.”

One notable change within the cyber insurance and reinsurance market is underwriting firms growing comfort in managing their portfolios using excess-of-loss protection, retaining more of the attrition and shedding peak loss exposure.

Howden explained that, “Importantly, quota share cessions are actually falling as insurers turn into more comfortable with attritional and enormous loss ratios, a trend which is prone to proceed as cedents explore more efficient capital structures similar to event-based excess-of-loss products.”

Happening to say that, “Growing interest on this area has facilitated a series of landmark cyber catastrophe bond issuances since 4Q23. ”

Howden added that, “As well as to just about doubling the dimensions of the event-based excess-of-loss market, these transactions also point to a level of investor appetite that can drive additional activity from here.

“Room for growth is considerable; catastrophe bond issuance for property- catastrophe risk, a market that has existed for nearly 30 years, was around USD 15 billion in 2023 versus just USD 0.4 billion for cyber. Additional cyber deals have been closed in 2024.”

You possibly can see details of each cyber catastrophe bond transaction to-date by filtering our extensive Deal Directory by covered peril.

“Continued investments into modelling solutions to administer and price systemic exposures have been (and can proceed to be) crucial to unlocking more capability from capital markets,” the broker believes.

“Work on this area will should be sustained with a view to speed up inflows (at the suitable price). Innovation, and never cover restrictions, is the path to long-term relevance, and latest possibilities.”

Jean Bayon de La Tour, Head of Cyber, International at Howden, commented, “Cyber insurance is vital to strengthening resilience around the globe and insurers are actually in a robust position to bring about real change.

“This involves providing more capability to satisfy pent up demand in currently underpenetrated regions, including Europe, Latin America and Asia, areas where Howden is investing strongly. The potential for growth is large, particularly as most of those countries are coming off such a low base.”

Capability stays key to discussions on cyber insurance and reinsurance and the unlocking of the capital markets has been a crucial step, which should help to make sure higher-layer excess-of-loss capability stays more available and provides re/insurers another choice for his or her cyber reinsurance and retrocession.

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