AM Best Assigns Stable Outlook to Global Cyber-Insurance Segment

AM Best has assigned a stable outlook to the global cyber-insurance segment, citing increased demand and favorable growth prospects as take-up rates improve.

This outlook is detailed in one of two reports jointly issued by AM Best. The report, U.S. Cyber: Hot Pricing Cools Off and Rapid Growth Stalls, discusses industry performance and notes that direct premium written growth was flat in 2023 compared to the previous year. This follows a period of rapid growth, during which US cyber premiums more than tripled 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 at AM Best. "Improving cybersecurity practices and decreases in claims frequency have also led to rate reductions after accelerated increases driven by a surge in ransomware attacks in 2020 and 2021."

According to the report, claims severity has decreased, offsetting the rise in frequency, resulting in stable calendar year results.

"Good cyber practices and awareness of the importance of cyber hygiene have proven beneficial to both insureds and insurers," said Fred Eslami, associate director at 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 percent increase in first-party claims."

The stable outlook for the segment also cites positive factors such as continuously improving cyber hygiene, expectations of profitability in the intermediate term, and better 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," Mr. Eslami said.

The report also notes counterbalancing factors, including increased competition and modest premium growth in the United States, which may indicate future international trends. Additionally, the growing sophistication of cyber attacks using artificial intelligence, ransomware, and business email compromise could pose challenges to underwriting cyber insurance.

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