Increased Claims Volume, Costs May Hit US Cyber Insurers' Profits

While cyber insurance has been a profitable line of business for US property-casualty insurers for several years, those insurers will likely face increased claims volume and average cost per claim going forward, according to Fitch Ratings.

Still, Fitch said a negative rating action resulting from underwriting losses related to a cyber incident is unlikely, despite insurers' recent weaker cyber-insurance underwriting performance. Cyber insurance represents less than 5 percent of most insurance companies' premium mix, Fitch said, with market share held by larger, well-capitalized insurers that cede significant portions of their business to reinsurers.

"Continued growth in cyber intrusions and ransomware events may pressure the durability and long-term profitability of the cyber-insurance market and insurers' internal management of cyber threats," a Fitch statement said.

The rating agency noted that the growth of cyber-risk exposures and rising claims losses have elevated the property-casualty sector's stand-alone cyber direct loss and defense and cost-containment expense ratio to 73 percent in 2020 from an average of 42 percent for the prior 5 years.

According to Fitch, the US cyber-insurance market saw sizable rate increases and tighter terms and conditions this year, as some larger cyber insurers reported deteriorating loss experience.

"Underwriting and pricing of cyber coverage are challenging due to limited historical policy and claims experience; companies with greater market share and a longer history in cyber have an informational advantage and have fared better than smaller-sized peers," Fitch said.