Squeeze in cyber reinsurance to get worse: Guy Carpenter

Increased demand from insurers coupled with limited capacity is about to make the market for cyber reinsurance even tighter, according to Guy Carpenter, a major reinsurance broker.

"Until recently, cyber insurers have generally been able to access capacity for reinsurers to support their expansion in the class," said Erica Davis, global co-head of cyber at Guy Carpenter at a media briefing on Wednesday.

"However, as the demand continues to increase in the draft market, and there is continued lack of new entrants into the reinsurance market, the squeeze on reinsurance capacity for cyber insurers will continue to be exacerbated."

The cyber insurance market continues to grow at breakneck speed: Guy Carpenter estimates that cyber premiums will hit $20bn globally by 2025, up from $10bn last year.

But the rapid growth of the market has led to a shortage of reinsurance capacity. The complexity of the risk and the possibility of massive, correlated losses has made reinsurers wary of increasing their exposure to the sector.

Insurance-linked securities (ILS), a possible source of further capital, have been slow to take off when it comes to cyber.

"Investors remain very cautious on cyber risk due to the increased frequency and systemic correlation issues," said Shiv Kumar, president of GC Securities, Guy Carpenter's in-house capital raising division.

Cyber attacks are down this year so far, possibly because Russian hackers have turned their attention to Ukraine, but few experts expect the current lull to last.