Howden Re has released a report on the cyber reinsurance market which examines the current state of the cyber risk transfer ecosystem, assessing how losses move through the market and evaluating whether present trends can sustain future growth.
The analysis uses multiple assessment methodologies, including fully probabilistic and fixed attrition models, to study market dynamics. According to the findings, ensuring a scalable cyber market will require advancements in vendor models, innovation in reinsurance products, and continued investment in cyber analytics.
The report outlines how the performance of cyber reinsurance products depends on structure and carrier-specific purchasing strategies. As buyer behavior shifts and market losses increase, reinsurers' risk tolerances could be tested, leading to heightened demand for retrocession capacity.
Luke Foord-Kelcey (pictured above left), global head of cyber at Howden Re, said cyber is evolving into a distinct asset class with diversified reinsurance products.
Foord-Kelcey noted that while there is growing confidence among buyers and sellers in managing systemic cyber risk, cedents must continue to evaluate purchasing strategies critically to align risk tolerances with broader portfolio objectives and maximize risk transfer efficiency.
Ahead of the April 1 renewals, Howden Re noted that global insurers and reinsurers reported stronger underwriting performance and capital positions in 2024.
Jan. 1, 2025, renewal activity increased compared to the previous year, although volumes remained below those recorded at Jan. 1, 2024. Renewal dynamics also changed, with less emphasis on price increases as a driver of growth.
Howden Re’s report observes that the cyber reinsurance market currently features a broadening range of product offerings and an increasing familiarity with the underlying risk profile.
However, it points out that reinsurer market share remains concentrated, with the top five cyber reinsurers accounting for 62% of gross written premium (GWP), and the top ten holding 87%, based on Howden Re estimates. The report suggests that diversification will be needed for cyber insurance to mature alongside more established classes.
It also notes a decline in average quota share cessions, falling from 57% five years ago to 45% today. This shift has made non-proportional cover more attractive for tail-risk transfer.
As the cyber insurance market grows and tail losses move through the ecosystem, additional retrocession capacity will be necessary to manage volatility as reinsurers' exposure to non-proportional risk increases.
Addressing catastrophe protection, the report evaluates whether insurers or reinsurers bear the majority of cyber-related aggregate losses. Through a fully probabilistic approach, insurers and reinsurers share the burden up to the 1-in-200 year return period.
However, from a fixed attrition perspective, insurers may not always be receiving the intended benefits of reinsurance protection. Using both methodologies is presented as the most comprehensive method of evaluating structure efficiency.
Looking ahead, the report projects a future where global cyber insurance premium grows to approximately $30 billion. In this scenario, the quota share market would represent just 25% of premium ceded, down from 32% today, while the non-proportional market would absorb 6.5% of premium, up from 4%.
The expansion of the retrocession market would be critical, as the reinsurance industry loss ratio for a 1-in-200 aggregate exceedance probability event is forecast to rise to 326%, compared to 272% currently.
David Flandro (pictured above right), head of strategic advisory at Howden Re, said that future growth in the cyber insurance sector will be driven by insight as much as by capital.
He noted that robust models, richer data, and advanced analytics will be key to unlocking new capacity, attracting participants, and managing accumulation risk.
What are your thoughts on this story? Please feel free to share your comments below.
