AM Best has assigned a stable outlook to the global cyber insurance segment, citing greater demand and favorable intermediate-term growth prospects as take-up rates steadily improve.
The newly assigned outlook is further detailed in one of two reports on the cyber market being jointly issued by AM Best. A Best’s Market Segment Report titled, U.S. Cyber: “Hot Pricing Cools Off and Rapid Growth Stalls,” addresses industry performance and notes that direct premium written (DPW) growth was essentially flat in 2023 compared with a year earlier. This came on the heels of rapid growth that saw the U.S. 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.”
Claims severity is down, more than offsetting the increase in frequency, and results on a calendar year basis were stable, according to the report.
“Good cyber practices and awareness of the importance of cyber hygiene have proven beneficial to both insureds and insurers,” 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.”
AM Best’s stable outlook for the segment cites positive factors such as this continuously improving cyber hygiene, expectations of profitability in the intermediate term, as well as improved underwriting practices and policy language.
“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,” Eslami said.
The report also notes some key countervailing factors, including increased competition and modest premium growth in the United States, which may be an indication of what may happen internationally. Also, the growing sophistication of cyber attacks using Artificial Intelligence, as well as ransomware and business e-mail compromise could pose challenges to underwriting cyber insurance.
To access the full copy of the Best’s Market Segment Report on U.S. cyber insurance, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=343980 .
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