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Cyber pricing acceleration expected to continue through H1: JP Morgan

9th May 2022 - Author: Jack Willard

Analysts at J.P Morgan have stated that cyber insurance is one of the fastest growing markets within insurance with premiums growing at a 27% CAGR (2017-21), but despite the high growth in the class, analysts have said that profitability is strong, with an average combined ratio of 77% vs 100% for the wider property & casualty (P&C) market.

growthSince the beginning of 2020, pricing in cyber insurance has been accelerating with increases of more than 100% at the end of Q4 21.

Analysts said that they expect these conditions to continue at least in the first half of 2022, due to a withdrawal of capacity.

They also stated that industry profitability improved YoY between 21/20, and price increases should ultimately feed through to far improved loss ratios in 2022 and beyond.

In addition, analysts also added that specialist insurer, Beazley, has the greatest concentration to cyber insurance globally, at ~18% of total premiums.

The analysts said that Beazley does not disclose cyber profitability, however, regulatory data suggests a combined ratio of ~70% in 2020 in its US cyber business, far stronger than the company guidance of a ~90% COR at the group level for 2022e.

Analysts also added that Beazley has managed to avoid the majority of major losses in cyber, for several reasons, which includes having strong and resilient reinsurance arrangements, a superior risk selection, and a focus on SME business.

Furthermore, analysts highlighted that German reinsurance giant, Munich Re grew its cyber premiums by a 43% CAGR (2017-21), outperforming the market, with an ambition to make up 10% of the market in the long run.

The analysts said that cyber is a strategic pillar of Munich Re, and the company appears to be more comfortable with the class than some of its reinsurance peers.

Furthermore, the analysts addressed that they believe in their view that there are two main challenges for companies writing cyber insurance, with the first one being, surrounding limited data and no experience of major losses.

For cyber, the class is far earlier in development, meaning that claims data is very limited, and the threat landscape is likely to move far faster than in most other classes of business.

However, analysts stated that they think that those companies at the forefront of cyber innovation, including Beazley and Munich Re are best placed to deal with new threats, as both companies are advanced in their risk management and monitoring capabilities, which should ultimately help them to avoid new and evolving risks.

The analysts said that their second challenge evolves around systemic risk, or the risk of aggregation. They highlighted how global interconnectedness of systems can allow for a single event to have a global impact, and warned that it is very difficult to gauge how costly a systemic event or large loss can be for the industry.

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