Reinsurers' capacity for cyberrisk close to its limit, says Swiss Re exec

The reinsurance industry is unable to take on much more cyberrisk, according to John Coletti, head of cyber reinsurance at Swiss Re AG.

"The reinsurance community is almost at its max right now," having already taken on so much cyber exposure, Coletti said at a press conference June 14. As a result, the industry needs to understand and manage its exposure to accumulation risk in the cyber market — the risk of a single attack causing widespread losses at the same time.

Swiss Re estimates that 45% to 50% of the cyberrisk underwritten by insurers is passed back to reinsurers, a figure which has grown steadily over the past few years, according to Coletti. This was driven in part by a surge in ransomware losses in 2019 and 2020, which caught insurers off-guard. Swiss Re had expected insurers to retain more risk, thanks to the increasing reliability of the models they use to help measure their exposures.

Reinsurance is a key tool for insurers to manage their own exposure, and so further growth in the market is dependent to an extent on reinsurance capacity.

The cyber insurance market as a whole "will not grow" unless it tackles its exposure to multiple, simultaneous losses from systemic events, Coletti said. He described quantifying such losses as "probably one of the most critical challenges that we have."

Part of the solution is using data to build risk models capable of predicting potential losses from such incidents. Coletti said there are also some policy language changes being discussed in the market, including wording that seeks to define a widespread event.

Cyber insurance growth has been rapid to date, and the global market currently generates $10 billion in premiums, Coletti said. He also noted that the projections for how much the market could grow were "tremendous." These include reinsurance broker Gallagher Re's prediction that cyber insurance could be the same size as the property or casualty market by 2040. Coletti attributed the growth to increasing digitization and connectivity, which in turn boost the potential for cyberattacks, and the growing awareness among companies of all types and sizes that they have cyber exposure.

The ultimate size of the cyber insurance market was almost unlimited, Coletti said, because almost all companies have some exposure to the risk.