Cyber insurance direct written premiums jumped 51% year-over-year in 2022 to $7.2 billion, but the hard market phase “has run its course” and rate growth will flatten out in the coming months, according to Fitch Ratings.
“Two years of substantial price increases and shifts in market underwriting practices fostered better segment results, leading to heightened competition and shifting pricing trends,” said the ratings firm in its report, adding, “The cyber market’s hardening phase of the last two years, characterized by substantial changes in pricing and underwriting practices, appears to have run its course.”
The cyber market also showed marked improvement in its results, with the loss ratio dropping to 43% in 2022 from 68% in 2021.
Fitch likened the slowing price increases to similar trends in the directors & officers liability space with new capacity and competition but warned of the potential for a “negative shift in pricing trends.”
“The current downward cycle is unlikely to shift, barring a new wave of cyber incidents with higher loss severity or a large cyber catastrophe event,” said Fitch in its report. However, while underwriting results have improved for cyber and there was a “modest tempering” in ransomware events last year, risk conditions should change rapidly.
“The claims environment remains highly fluid, given the rapid pace of technological and economic change, such that recent relative claims stability may prove short lived,” said Fitch.
Cyber insurance accounted for 1% of all property/casualty insurance premiums in 2022 but was the fastest growing sector last year. The percentage of standalone coverage in the market increased to 70% in 2022, accounting for $5.1 billion in premium and 343,000 policies, Fitch said. There are over 3.5 million package polices with cyber coverage in force, but they account for much less premium than standalone and have declined by 6% since 2020.
The top 10 U.S. cyber writers insured 52% of the market at the end of 2022, with Fairfax Financial holding the largest standalone market share at 11.1%, followed by AXA XL at 10.4% and Arch Capital at 6.3%.
Chubb wrote the largest percentage of package policies with a 28% share of all direct package premiums, followed by CNA Financial at 9% and Hartford Financial Services Group at 6%.
Fitch also examined claims activity in 2022, which increased by 27% over the last two years. Approximately 5,400 standalone cyber claims were paid in 2022, twice the amount in 2019.
“Despite concerns of higher claims costs from inflation and economic volatility, the average cost of a cyber claims payment was stable in the last two years,” Fitch commented, adding, “The potential for significant increases in loss severity derives from multiple fronts, including higher remediation and settlement costs, changes in the nature and value of ransomware events, higher regulatory fines and settlements as data privacy laws and regulations are implemented in more jurisdictions, and uncertainty regarding probability and insured losses from cyber catastrophes.”