Brought to you by:

AM Best rates global cyber insurance ‘stable’ 

AM Best has assigned a stable outlook to the global cyber insurance segment, saying greater demand promises growth.

Improving cyber “hygiene”, expected profitability in the intermediate term and improved underwriting practices and policy language all contribute to the outlook.

Take-up rates are steadily improving, the ratings agency says, though in the US direct premium written was flat last year after more than tripling from 2019 to 2022.

Increased competition and modest US premium growth “may be an indication of what may happen internationally”, it says.

Growing sophistication of attacks via artificial intelligence, plus ransomware and business email compromise, could also pose challenges to underwriting cyber insurance.

“Artificial intelligence will benefit cybersecurity and the insurance industry but will also provide cybercriminals with more tools to spread malware, deploy scams, use stolen data and create harm in new ways,” AM Best said. "These could certainly be detrimental to organisations without insurance. They can also impact insurers’ profitability.”

Globally, cyber claim severity is down, more than offsetting an increase in frequency.

Analyst Christopher Graham says improved cybersecurity practices and drops in claim frequency have led to rate reductions after a period of increases driven by a surge in ransomware attacks in 2020 and 2021.

“The reduction in rates has been due to various factors, including increased competition from the supply side,” he said.

AM Best associate director Fred Eslami says good cyber practices and awareness have benefited insureds and insurers.

“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,” he said. “We expect that cyber coverage will continue to grow over time, as the heightened awareness of cyber risks contributes to an increase in exposures.”

AM Best says about half of all cyber direct premium written is ceded to reinsurers, far more than any other line of insurance, and the market is still not mature, as signified by volatility in the rate environment. “As insurers understand the risk better, we can expect to see increasing maturity of the cyber market,” the ratings agency said.