Cyber occasions and inventory market efficiency – are they related?

A brand new report targeted on the cyber (re)insurance coverage market, addressing considerations raised by ILS buyers concerning the potential correlation between important cyber occasions, inventory market efficiency, and their affect on monetary market asset exposures, has been launched by Guy Carpenter.

Scrutinizing intensive business and tutorial analysis, the examine went on to ascertain that there isn’t a clear hyperlink between observable historic cyber occasions and inventory market downturns.

“Random noise in the market”

The examine examines 14 main cyber occasions that occurred between January 1, 2000, and the current day, categorizing them into 4 distinct sorts:

1. Mass breach or vulnerability occasions, together with Solarwinds and NotPetya
2. Mass service outages, exemplified by the 2011 Amazon Web Services and the 2016 Dyn DDoS assaults
3. Critical infrastructure compromises, such because the Colonial Pipeline and Saudi Aramco incidents
4. Financial market compromises, encompassing the 2010 Nasdaq breaches and the latest ION ransomware assault

To assess the potential adversarial affect of a cyber occasion on the S&P 500, the analysis workforce additionally carried out a statistical evaluation, inspecting the distribution of market returns instantly and shortly after the 14 historic occasions. The evaluation concluded that none of those occasions had a major affect on the distribution of market returns, with all falling “within the random noise in the market.”

Additionally, the report evaluates the occasions compared to the Chicago Board of Exchange (CBOE) Volatility Index (VIX), which measures anticipated volatility over the subsequent 30 days. The examine finds that not one of the 14 occasions “led to meaningful rises or shifts in the VIX.”

Furthermore, the report attracts a parallel between the impacts of cyber occasions and pure catastrophes on the S&P 500’s common 30-day efficiency. It notes that the market impact of each classes was “very similar to that of major hurricanes,” primarily inflicting important one-time losses with out inducing strategic adjustments in financial exercise or funding.

“Our analysis demonstrates the lack of statistical correlation between widespread cyber events and stock market performance. The study also highlights that unlike natural catastrophe risks, the probability and impact of cyber-related risks can be mitigated with human intervention and AI-based cyber management tools, such as identifying and patching exploitable vulnerabilities in a timely manner. Cyber market participants can leverage our research findings to make informed decisions about their cyber strategy and attract new capital to support the sustainable growth of this insurance industry segment,” Guy Carpenter North American cyber analytics lead Jess Fung (pictured left) mentioned.

Zain Awan (pictured proper), worldwide cyber ILS lead at Guy Carpenter, added that with the suitable danger switch constructions, clear agreements on lined eventualities/occasions in cyber disaster transactions, and strong danger modeling, cedents and buyers may be higher positioned to have interaction and commerce cyber danger exposures with confidence.

What are your ideas on this story? Please be at liberty to share your feedback under.