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Cyber reinsurance rate increases expected: S&P

Rating agency said reinsurers needed to regain profitability in cyber after a difficult 2022

Reinsurers are reaching the limits of the exposure they can handle, rating agency warns

Global cyber reinsurance rates are expected to increase this year as reinsurers near the limits of the exposure they wish to take, S&P Global said. 

The rating agency said reinsurers needed to regain profitability in cyber after a difficult 2022, which saw the segment achieve an average net combined ratio of 101%.

“Many reinsurers are nearing the limits of the amount of cyber exposure they can and want to handle,” analysts at S&P said.

“We, therefore, expect more rate increases for cyber reinsurance business this year, as we have seen in the cyber primary insurance segment over the past two years,” they continued. 

“However, we believe primary cyber insurance underwriters can absorb the increases without passing them on to policyholders,” the analysts added.

On the primary insurance side, the global cyber insurance market turned a profit last year following two years of rate increases and tightening terms and conditions, which offset pressure from higher claims frequency.

The gross combined ratios of primary cyber insurers improved to 64% to 87% in 2022, depending on the region, indicating “solid” underlying technical profitability, S&P said. 

Cyber is still the fastest-growing line of business, with premiums reaching $12bn by the end of 2022. However, most of that growth has been driven by rate increase, as opposed to an underlying growth in the size or volume of contracts, S&P said. 

Rate increases in cyber peaked at 37% in the last quarter of 2021 and have gradually moderated since, dropping below 10% in the first quarter of 2023.

But if the sector can encourage more sustainable underlying growth, that is not led by rate increases, the premiums could increase 25% to 30% per year to reach around $23bn by 2025, S&P said. 

The S&P analysts also said global re/insurers are prepared to withstand a direct cyber attack on their own businesses.

The rating agency said, on average, insurers and reinsurers would likely withstand an attack on their organisation with limited impact on their capital. However, a direct attack could hit earnings of some insurers significantly, it said.

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