Howden Re, the reinsurance, capital markets, and strategic advisory division of Howden, has released Into the Cyberverse, an in-depth report examining the future of cyber risk transfer and outlining the necessary structural changes for creating a sustainable, scalable market.
The report assesses how cyber losses move through the reinsurance ecosystem and evaluates programme performance across various scenarios using both probabilistic and fixed attrition methods.
By utilising these methodologies, the report offers a clearer view of reinsurance effectiveness, helping stakeholders grasp the potential impact of systemic cyber risks on insurers at different levels of coverage.
The key takeaway is clear: substantial advancements in vendor models, product innovation, and a stronger focus on analytics investment are essential for supporting the growth of the cyber insurance industry.
Luke Foord-Kelcey, Global Head of Cyber, Howden Re, said: “Cyber is maturing into a distinct asset class with diversified reinsurance product offerings. This report reflects the growing confidence of cyber reinsurance buyers and sellers in managing systemic cyber risk.
“Cedents must nevertheless continue to evaluate reinsurance purchasing strategies critically and holistically, ensuring alignment with risk tolerances and broader portfolio objectives, to maximise risk transfer efficiency.”
Howden Re’s market analysis reveals that while the variety of products available is growing and reinsurers are becoming more willing to take on risk, the level of market concentration remains notably high.
The top five reinsurers capture 62% of cyber gross written premium, with the top ten controlling 87%. Such concentration could limit opportunities for diversification and hinder the industry’s capacity to manage increasingly complex and volatile loss situations.
Simultaneously, average quota share cessions have dropped from 57% to 45% over the last five years, as carriers focus on retaining more premium and prioritizing tail-risk protection through non-proportional structures.
This trend is expected to accelerate as aggregate and event-based losses push the boundaries of traditional coverage. As a result, reinsurers will need more retrocession capacity to handle the growing concentration of non-proportional risk in their portfolios.
Into the Cyberverse outlines a future scenario where global cyber premiums reach US$30 billion, with non-proportional reinsurance accounting for a significantly larger portion of ceded premiums. The report underscores how loss ratios for a 1-in-200 year aggregate exceedance probability event could rise to 326%, compared to today’s 272%, further emphasising the need for innovation and capital management strategies.
Additionally, the report examines who ultimately shoulders the bulk of cyber catastrophe losses. By combining model-based and attritional perspectives, the analysis shows that insurers and reinsurers typically share losses up to the 1-in-200 year return period.
However, beyond that point, structural limits and quota share caps push more of the burden onto insurers. These dynamics are further complicated by acquisition costs, with reinsurers taking on more risk due to higher upfront expenses and lower expense ratios.
David Flandro, Head of Strategic Advisory, Howden Re, added: “Into the Cyberverse makes plain that tomorrow’s cyber market will be powered as much by insight as by capital. Robust models, richer data and advanced analytics are the engines that will unlock fresh capacity, attract new participants and contain accumulation risk.
“By stress-testing programmes through both probabilistic and fixed-attrition lenses, our analysis pinpoints where volatility truly resides and shows how innovative structures can keep growth on a sustainable footing.”
The report further highlights that 36% of cyber insurance premiums are currently ceded to reinsurers, with only 7% of that amount being passed on to retrocessionaires.
This discrepancy points to the potential for further growth in the retrocession market. As reinsurers increasingly move away from proportional structures and with new market entrants adding an extra US $250 million in cyber reinsurance premiums this year, the market is becoming more competitive.
It is also placing greater emphasis on customised structures that align with the unique exposures and risk appetites of individual carriers.
