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Cyber insurance market attractive despite ransomware uptick: JP Morgan

13th November 2023 - Author: Kane Wells

Despite ransomware frequency picking up following a slowdown in 2022, analysts at JP Morgan still see the cyber insurance market as an “attractive area with strong profitability and good exposure growth potential in the coming years.”

J.P MorganCiting data released by Aon, JP Morgan said that ransomware attacks picked up 176% in Q2 2023 over the previous year.

“In the first half of 2023, attacks happened in education and professional services firms along with manufacturing, financial services firms and technology, the firm’s analysts explained.

They continued, “While the percentage increase in ransomware itself was pretty eye-catching, we would note that Q2 2022 had benefited from a material reduction in ransomware claims frequency.”

JP Morgan’s analysts noted that the latest statement from Beazley at 9M 2023 highlighted that whilst they have seen an increase in ransomware attacks, they have not seen an uptick in claims frequency.

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“We believe that the risk mitigation efforts in 2021/22 are also likely to have helped the company to avoid the increase. Outside of ransomware, data breach/privacy events have remained at subdued levels,” The analysts said.

They went on, “However margins are strong and prices still likely reflect higher claims expectations given dramatic correction.

“Outside of claims trends, we have begun to see small reductions in pricing following a period of very rapid price improvements. The latest pricing data from Beazley showed a 4% reduction in cyber pricing at the 9M 2023 statement.”

JP Morgan did observe that prices are more than 2.5x times higher than they were in 2020, which the firm’s analysts believe more than adequately reflects the risk of ransomware claims frequency.

In addition, the cyber market combined ratio was ~74% in 2022, based on Aon data, “demonstrating that the class is highly profitable when compared to many other parts of the P&C market.”

JP Morgan’s analysts concluded, “Compared to many other classes of business, cyber insurance has stronger profitability on an underwriting basis. In fact, even in some of the tougher years, the class still produced an underwriting profit.

“In 2022, based on US data, the combined ratio was 74%, materially better than the average P&C market of ~99% on a long-term basis. In fact, with price increases from 2022 yet to earn through, we assume that profit margins are even stronger than the 2022 level suggests.

“What this means is that even if frequency has picked up again, there is a very strong base of profitability to absorb any increase in our view.”

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