Appetite grows for cyber ILS & ILWs in H1’25, demand for retro also increases: Lockton Re

Appetite for cyber insurance-linked securities (ILS) and industry loss warranties (ILWs) experienced consistent growth in the first half of 2025, although at a reduced rate than the previous year, while cyber retrocession gained momentum with buyer interest significantly rising during the same period too, according to reinsurance broker Lockton Re.

In its H1 2025 Cyber Reinsurance Update report, Lockton Re noted that there is “increasing comfort” with the PERILS and CyberAcuView Index, which has been used in the past for transactions involving significant cyber risk transfer, including cyber catastrophe bonds and industry loss warranties (ILWs).

However, in the absence of a major cyber catastrophe event to test the index, Lockton Re states that there remains caution in regards to the basis risk for the coverage trigger.

Concurrently, the broker noted that investor interest within both cyber ILS and ILW continues to expand, with growing understanding of modelling outputs and event definitions managing to draw in a wider pool of capital, from pension investors to hedge funds.

“As pricing continues to improve for issuers of catastrophe bonds and ILWs, these structures may increasingly be seen as viable complements to traditional reinsurance, particularly for severe or systemic risk layers,” Lockton Re said.

Adding: “Several cedants are already in the process of building ILS instruments into their buying strategies, to diversify their capital base and facilitate growth of their cyber portfolio over the longer term.”

Switching attention to cyber retrocession, the broker explained sellers of cyber retrocession managed to materially increase their appetites during H1’25, which ultimately benefitted reinsurers that looked to protect their portfolios, on a proportional or non-proportional basis.

Clearly, this mirrors the broader dynamics within the reinsurance market.

As Lockton Re notes: “Increased capacity, driven both by traditional retrocessionaires and alternative capital, has created a more competitive environment. This prompted some rate reductions, particularly for high-quality portfolios with strong reputation, data hygiene and loss performance.”

Additionally, buyer demand for cyber retrocession also grew as well throughout H1’25, particularly among larger reinsurers who looked to manage peak cyber aggregations and protect capital, following the notable rise in high-profile ransomware and systemic exposure events.

Compared to H1 2024, Lockton Re noted that cyber retrocession purchases have become more diversified in structure, with both excess of loss placements and quota share being deployed in select portfolios.

“In summary, the softening conditions of the cyber (re) insurance market are still being felt, to the benefit of cedants and ultimate policy holders. Cyber risk continues to evolve rapidly, causing ongoing challenges and opportunities for participants,” Lockton Re said.

Adding: “The increasing focus on new geographic markets provides an exciting next phase of growth. The diversification this provides to carriers is clear and enables them to harness new opportunities.”

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