Stable outlook for global cyber insurance market from AM Best

Greater demand for cyber insurance with steadily improving take-up rates, and continuously improving cyber security hygiene, are behind a newly assigned stable outlook for the global cyber insurance segment by AM Best. Claims severity is down, more than offsetting the increase in frequency, and results on a calendar-year basis were stable, according to the ratings agency. Best said the US cyber market has seen a drop-off in pricing, and direct premium written growth was essentially flat in 2023 compared with a year earlier, which came on the heels of rapid growth that saw the US cyber segment’s premium more than triple from 2019 to 2022. “The reduction in rates has been due to various factors, including increased competition from the supply side,” said Christopher Graham, senior industry analyst, AM Best. “In addition, improving cyber security practices and decreases in claims frequency have also led to rate reductions after a period of accelerated rate increases driven by a surge in ransomware attacks in 2020 and 2021.” Best’s stable outlook for the global segment cites positive factors such as continuously improving cyber hygiene, expectations of profitability in the intermediate term, as well as improved underwriting practices and policy language. “Good cyber practices and awareness of the importance of cyber hygiene have proven beneficial to both insureds and insurers,” said Fred Eslami, associate director, AM Best. “These practices have led to a steady decline in the segment’s loss ratio, despite a sharp increase in ransomware attacks in 2023, which resulted in a 50% increase in first-party claims.” He added: “We expect that cyber coverage will continue to grow over time, as the heightening awareness of cyber risks contributes to an increase in exposures and, correspondingly, an increase in demand for cyber insurance.” Best noted other positive factors such as improvements in underwriting practices and policy language, a supportive reinsurance market, and recent access to alternative risk transfer products such as insurance-linked securities. Some key countervailing factors highlighted by Best include increased competition and modest premium growth in the US, as well as the growing sophistication of cyberattacks using artificial intelligence, and aggregation risks from widespread use of cloud computing and essential software with large footprints across geographies and industries. Best said it expects that cyber coverage will continue to grow over time, as the heightening awareness of cyber risks contributes to an increase in exposures and, correspondingly, an increase in demand for cyber insurance. “Given the growing number of threats and local regulatory requirements, AM Best expects demand for cyber coverage to increase and remain strong over the medium term,” it said. However, Best noted that about half of all cyber direct premiums written are ceded to reinsurers, far more than any other line of insurance, and if reinsurers pull back capacity, primary insurers may find it difficult to meet the demand for coverage.

Stable outlook for global cyber insurance market from AM Best

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