As per a new report from S&P Global, the reinsurance market is set to remain extremely important in providing capital and capacity to support further revenue growth in the cyber insurance market.
“In our view, reinsurers will remain an important pillar in the development of a sustainable and effective cyber insurance market,” the rating agency explained.
According to S&P’s report, cyber insurers use a significant amount of reinsurance, with primary insurers, on average, ceding around 56% of cyber insurance premiums to reinsurers in 2023.
Meanwhile, despite cyber reinsurers’ average net combined ratio underperforming the primary insurance segment over the past three years, strict underwriting and significant rate adjustments in 2023 enabled reinsurers to achieve underwriting profitability in their cyber portfolios.
The net combined ratio improved to 89% in 2023, compared to 99% in 2022 and 104% in 2021, a trend that S&P anticipates to continue in 2024, leading to currently sustainable margins for cyber reinsurers.
Elsewhere in the report, S&P observed that a combination of improved profitability and cyber underwriters that are better equipped to manage and absorb attritional losses has seen reinsurers move toward excess-of-loss treaties that focus on high-severity events.
According to the rating agency, this could be an early sign of a maturing cyber reinsurance market.
S&P concluded, “Overall, we forecast rising demand for event-based structures, like event excess-of-loss reinsurance, and aggregate stop-loss agreements, especially from larger insurance groups.
“Currently, most of the capacity for cyber reinsurance comes from large and specialty carriers. However, in the coming years, we anticipate this concentration will decrease as more reinsurers enter the market and as existing players gradually raise their insurance limits to expand their cyber product offerings.
“This shift should enhance diversification in both treaty and facultative markets, while also fostering advancements in quantitative modeling, scenario analysis, and data quality.”
