In a collaborative effort, Guy Carpenter and Marsh McLennan’s Cyber Risk Intelligence Center have released a comprehensive report addressing concerns by insurance-linked securities (ILS) investors regarding the potential correlation between major cyber events and the performance of the stock market.
Titled “Double Whammy? Examining the Correlation Between Major Cyber Events and Broad Market Performance,” the report meticulously evaluates industry and academic research to shed light on this critical issue.
The study delves into 14 significant cyber events occurring between January 1, 2000, and the present, covering various categories, including mass breaches, mass service outages, critical infrastructure compromises, and financial market compromises.
To test the hypothesis of a negative impact of cyber events on the S&P 500, the research team conducted a thorough statistical analysis. The results were clear: none of the 14 cyber events had a significant impact on the distribution of market returns, all falling within the realm of “random noise” in the market.
The report further compared the effects of cyber events to natural catastrophes on the S&P 500’s average 30-day performance. It noted that both types of events primarily resulted in large one-time losses but did not lead to strategic changes in economic activity or investment.
Commenting on the findings, Jess Fung, North American Cyber Analytics Lead at Guy Carpenter, emphasised that the analysis demonstrates the lack of statistical correlation between widespread cyber events and stock market performance.
Fung also highlighted the potential for mitigating cyber-related risks through human intervention and AI-based cyber management tools.
Zain Awan, International Cyber ILS Lead at Guy Carpenter, stressed the importance of risk transfer structures, agreement on covered scenarios/events, and robust risk modeling to boost confidence in engaging and trading cyber risk exposures.
ILS investors have expressed concerns about entering the cyber insurance market due to uncertainties around risk quantification and perceived correlations between cyber events and stock market performance. However, as cyber catastrophe models mature, they become increasingly reliable tools for risk assessment.
