According to a new report released by Lockton Re, the reinsurance arm of the privately held independent insurance broker, the capital markets are a critical aspect for the continued growth of the cyber reinsurance market.As per Lockton Re, the cyber insurance market is projected to more than double by 2030, with conservative estimates suggesting that the market will grow to around $30 billion to $40 billion by 2030, which will have wide-ranging implications for both the cyber re/insurance sector and the broader insurance industry.However, the firm stresses that this growth is not automatic, and that it will depend on deliberate strategic actions by market participants.Moreover, the report notes that the average compound annual growth rate (CAGR) of the cyber re/insurance market between 2015 and 2025 has been consistently over 20%.

But, while the rate of expansion has slowed following a supply-led increase in capacity from late 2021 onwards, Lockton Re noted that a range of estimates suggest growth rates will be above 10% for the remainder of the 2020s, which implies an approximate doubling of the global premium by 2030.Lockton Re, however, warns that this growth is not inevitable, and stresses the importance of linking market growth to sustainable capital availability.“Competing in today’s cyber insurance market can feel like a street fight, battling out for each client based on coverage, pricing, service and whatever else the customer considers important on that particular day.

However, viewing the bigger picture is critical for the long-term sustainability of the industry.A few things need to occur to show outside capital providers the appeal of the insurance industry compared with other investments,” the report reads.“Cyber insurance plays a role in this by improving the diversification of carrier portfolios.

Second, the continual calibration of how capital is allocated, based on realistic disaster planning, needs to be refined.This allows for more efficient allocation of capital and has implications for how regulatory solvency and capital obligations are managed.Third, the understanding of systemic risks needs continued iteration to protect the viability (and reputation) of the industry.” The report also notes cyber risk offers a non-correlated asset class attractive to investors, complementing traditional property and casualty exposures.

As well as this, the development of insurance-linked securities (ILS), which includes cyber catastrophe bonds, is providing a pathway for non-traditional investors to participate in the market.“Insurance-Linked Securities (ILS) provide an effective mechanism for non-traditional capital providers to access insurance risk, with cyber becoming part of their investment toolkit.Over twenty investors have deployed capital since the initial formation of the cyber catastrophe bond in 2023.

This market now approaches one billion dollars of coverage across eleven tranches and has become a pillar of the catastrophe cover purchasing strategy of several leading cyber insurers,” the report reads.Adding: “There was a flurry of activity in 2024, followed by a lull in deal flow in 2025.This was primarily due to the cost-effectiveness of traditional reinsurance capacity and a reduction in average reinsurance cession, in response to the softening of underlying rates.

Whilst cyber cat bonds remain on an upward slope for new issuances, the journey has been stepped.” You can read about every cyber cat bond transaction, including the first private cat bond deals and the more recent 144A cyber cat bonds, .Lockton Re also stresses that exploring ILS solutions in the alternative capital markets is somewhat hindered by limited historical precedents, particularly compared to natural catastrophe models.This creates inherent uncertainty, which means some ILS investors may demand a premium in their margin to reflect this, over and above that of property catastrophe risk, Lockton Re explains.

“While models are still rapidly evolving, more capital is retained to take this uncertainty into account.One near-term consequence is that there could be insufficient capital to meet the tail risk metrics (re)insurers require.Until a major cyber event tests the models, perceived uncertainty in how event covers and bonds respond will persist.” Concurrently, Lockton Re continued by stating that most market participants agree that traditional capital is simply unable to keep pace with cyber’s growth trajectory.

“Capital markets will become a crucial and consistent part of the cyber reinsurance market moving forwards, and structures will continue to evolve.We are already beginning to see repeat bond issuances, and smatterings of secondary market bond trading activity as investors jostle for cyber risk exposure.” As per Theo Norris, Cyber ILS Leader at Lockton Re Capital Markets, cedants are testing their event definitions and calibrating their view of risk behind the scenes, to ready themselves for the expansion of cyber cat protections, from event covers to catastrophe bonds.Furthermore, Lockton Re states that an intriguing characteristic of the current cyber market is that, in order to attract capital investors, there needs to be a “demonstrable growth path for the market.” “The relationship between market growth and the capital required to fuel it is a symbiotic one that is non-linear but critical to market success overall.

It is an age-old question of which should come first.One way to solve this conundrum is the constant evolution of both the market response to the threat landscape and the adaptation of cyber catastrophe models, which will improve the parameters to assess the growth opportunities and capital requirements over time.”.All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance can be accessed online.

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