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Cyber rates to reach 'equilibrium', Beazley CEO predicts

Adrian Cox's comments came as Beazley’s cyber risks division reported a surge in profit in the first half

Improved attritional loss ratio and increased capacity will flatten rate rises, chief executive says, as Beazley take steps to clearly define and limit systemic risks

The cyber market is expected to reach “equilibrium” over the next year after a period of significant rate rises, Beazley chief executive, Adrian Cox, has said. 

Cox predicted rate increases, which have soared over the past year, would slow as attritional loss ratios begin to decrease and risk selection improves.

But the market still requires more capacity if it is to reach its full potential, Cox said.

Beazley is updating its cyber wording to refine the war exclusion and clearly define and limit systemic risks.

It is hoped this will encourage more reinsurance and capital markets capacity into the cyber market, Cox said

“To attract more capital into the market we need to define what systemic risk is and how we are managing it,” he said.

Cox's comments came as Beazley’s cyber risks division reported a surge in profit in the first half of the year and strong premium growth on the back of favourable market conditions.

The division booked pre-tax profit of $64.8m compared to $22.1m a year earlier, as premiums surged to $473m from $267m. Its combined ratio improved 22 points to 74%.

Cox said the company had benefitted from a lack of cyber catastrophes this year, while improved risk selection had reduced the attritional loss ratio.

 

'To attract more capital into the market we need to define what systemic risk is and how we are managing it'

Adrian Cox
Beazley

 

Beazley has cut its ransomware frequency by 30% per policy since the fourth quarter of 2020, or by 70% when premium rate changes are also allowed for.

“We expect strong cyber growth to continue,” Cox said.

Cyber insurance premiums have soared in recent months, with past quarters seeing average annualised increases in excess of 120%, according to Howden data.

This has been caused by surging loss frequency and severity from ransomware claims and has pushed pricing to the limits of affordability for some buyers, the broker said. 

The annualised number of global ransomware incidents were up 235% in 2021 compared to 2019, while average US ransom payments have risen 370% over the same timeframe.

In recent months, the rate of increase has slowed with prices hikes averaging 105% in April 2022, while ransomware claims hit a peak in the second quarter of 2021, with the number of incidents continuing to decline into this year.

This trend has been attributed to improved cyber resilience following underwriting and risk management actions and the war in Ukraine, which had reduced cyber-attack frequency.

Howden said recently the “ingredients” for a more mature cyber market are now in place, with strong demand and the prospect of more capacity set to drive “significant” market growth over the medium term.

A predicted compound annual growth rate of 25% would see gross written premiums reach $25bn by 2026, according to Howden.

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