A one-in-200-year cyber event has the potential to produce damages between $15.6bn and $33.4bn and a one-in-50-year event could lead to potential damages in the range of $5.5bn-$24.4bn according to a new report by Guy Carpenter.
The report, Through the Looking Glass: Interrogating the Numbers Behind Today’s Cyber Market
examines the cyber reinsurance market by modelling potential global loss events and the evolution of the cyber market. It also assesses the size and scope of the industry and provides a view of the potential scale of a global cyber industry loss.
The report estimates that the US-domiciled cyber market currently stands at approximately $9bn, with the non-US market totalling approximately $5bn. While the majority of global premium is still generated by US-focused carriers, the UK and European markets have seen accelerated growth.
The possibility of a global industry event loss was examined across three cyber-modelling platforms. To model the loss, Guy Carpenter leveraged its own data related to nearly 2m cyber policies. The loss scenarios used spanned cloud, data theft and ransomware/malware events.
These variations in estimates from the three platforms are driven by scenario interpretation, different views of event footprints and the analysis of historic data points, the report noted.
The US market segment constitutes approximately two-thirds of the global total loss, the report found, largely due to its broader market penetration and is closely aligned with the premium splits between territories.
Model variations were surprisingly greater at lower-return periods. “A factor attributed to a greater need to interrogate the takeaways from precedents and ‘counterfactuals’ to drive better consensus,” the Guy Carpenter analysis said.
Guy Carpenter global co-head of cyber Erica Davis said, “The improvements to data quality and nimbleness of the cyber models are instrumental in continuing to attract capital to the cyber market.
Ms. Davis said, “As structures evolve to laser out catastrophe events, reinsurance buyers will have more choice in how they manage their portfolios and the diversity that arises from divergent buying strategies will expand the opportunities for capital to flow into the market, thus feeding its ongoing growth.”
Guy Carpenter global co-head of cyber Anthony Cordonnier said, “Market impact from a significant cyber loss is not unexpected given the industry’s resilience to greater losses from other classes. In most cases, these (significant cyber losses) should not be insurmountable.”