Profitable results in the fast-growing cyber space have led to fierce competition and a buyers market, with renewal rates expected to suffer, according to Fitch Ratings.
Fitch observed that cyber continues to represent a significant growth opportunity for U.S property & casualty (P&C) re/insurers, driven by increasingly high-profile cyber-attacks and regulatory requirements.
In 2017, the industry statutory direct loss ratio for stand-alone cyber insurance fell to 35%, from 43% in the preceding year, indicating strong underlying profitability in the cyber market.
However, profitable results are attracting competition to the cyber space, and cyber premium renewal rates are expected to remain flat to down, indicating that capacity is already meeting or exceeding demand.
James Auden, Managing Director at Fitch Ratings, explained: “Profitable results in a new market are attracting competition to the cyber space. Roughly 75 distinct insurers wrote over $1 million each of annual cyber premiums last year alone.”
Fitch also believes that underwriting results will suffer as exposure grows, and that pricing movements will be affected as more capacity is attracted to the market.
Gerry Glombicki, Director at Fitch Ratings, commented: “As cyber underwriting exposure grows, more cyber incidents will be covered, generating claims that lead to weaker underwriting results.
“From an individual underwriter perspective, the risk of naive capacity entering the market, growing rapidly without sufficient expertise and ultimately suffering outsized losses in cyber is an expanding possibility.”
Fitch’s comments support the findings of a recent PwC report, which suggested that the cyber market presents both significant risks and opportunities for re/insurers.