ILS cyber reinsurance won’t mature fully until clearing cat bar: AM Best

First steps towards ILS reinsurance backing of cyber risks show viable steps towards investor-friendly solutions, but won't prove their mettle until a cat-sized event clears an untested bar, with a mere $1 billion event looking “difficult,” analysts at  AM Best have indicated.

Early efforts towards cyber-ILS, some in place since late 2022, should deliver insights “to bridge the gap between complexity of a proportional cyber risk cession with the needs of a capital markets investor,” analysts at AM Best acknowledge in a recent research.

Efforts to date have been highlighted by a $45 million cyber cat bond from Beazley, but the list is not restricted to that headline event.

AM Best also tips its hat to third-party capital in support of the October 2022 launch of Ferian Re. Insurtech MGA Coalition, which is backed by such global insurance names as Allianz, Swiss Re CorSo, Arch Insurance, Lloyd’s, Ascot and Vantage, will back its cyber coverage through the vehicle.

A move in January 2023 by Hannover Re to add a quota share cyber retrocession vehicle to its offer for third party capital also took a nod from AM Best analysts.

But the cyber market has yet to face off against its greatest fear: systemic events that create aggregations and render catastrophic loss.

“A $1 billion loss event would strain the system. A larger loss would be difficult for insurers to cover,” analysts at AM Best believe, citing “around” $5 billion in premium in 2021 and their own estimate of $8 to 11 billion in premium for 2022.

That leaves the  Beazley, Coalition and Hannover Re products looking rather unproven under fire.

“The cyber market has not yet faced a comprehensive test, so any cyber catastrophe - and how losses are paid - could cause the markets to revisit these solutions.”

Did you get value from this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.