As increasing cyber risks and falling rates push the cyber insurance market to a critical crossroad, reinsurers will remain the backbone of the industry’s ability to transfer cyber risk.
This is according to a recent report by S&P Global Ratings, which states that the reinsurance market is set to act as the primary absorber of cyber accumulation risk as these exposures grow in both scale and interconnectedness.
Increasing cyber threats and the potential for greater damage are increasing risks and the cost of claims. This environment has driven demand for insurance, yet insurance rates have fallen for several consecutive quarters, eroded by abundant underwriting capacity and intense competition.
While insurers have maintained underwriting discipline to remain broadly profitable, S&P notes that the market is final showing signs of turning.
The multi-year downward pricing momentum is beginning to slow as underwriting margins tighten, with the US market leading the deceleration towards pricing stabilisation.
According to S&P this emerging dynamic creates two plausible market scenarios:
- Scenario One: Gradual market rebalancing. In this scenario, continued market pressures encourage insurers to implement controlled rate increases. This allows carriers to stay ahead of rising claim costs and keep combined ratios below 100%, preserving underwriting profitability.
- Scenario two: Delayed correction and a challenging market. If weak pricing discipline results in sustained underpricing, profitability could materially decline over the next one to two years. This would likely trigger a market correction–similar to the dynamic experienced by the cyber insurance market in 2021, or the global property and casualty (P/C) reinsurance market in 2023. Such a correction could lead to multi-year underwriting losses and force insurers into abrupt, disruptive changes, including sharp premium increases, capacity reductions, and much tighter underwriting standards.
“The decline in cyber insurance rates is beginning to slow, with early signs of improving pricing discipline that may help stabilise underwriting profitability and preserve the current reinsurance-led-market structure. However, adverse cyber loss trends and persistent competitive pressure could challenge pricing adequacy and increase the risk of market underpricing, analysts note,” S&P stated.
Because of cyber insurance’s systemic and accumulative risk profile, it remains one of the most heavily reinsured lines of business. Risk flows steadily from policyholders to primary insurers and directly into the reinsurance market, where a massive share of global cyber exposure ultimately clusters.
Consequently, S&P expects that “reinsurers will remain the backbone of insurers’ ability to transfer cyber risk, making the reinsurance market the primary absorber of cyber accumulation risk as cyber exposures grow in scale and interconnectedness.”
Analysts added: “Ample reinsurance capacity remains available across both proportional and non-proportional structures, contributing to moderately softer reinsurance terms and continued competition among capacity providers.
“Cyber reinsurers hold the keys to market discipline as they set underwriting standards, shape pricing, and promote consistent risk management across the cyber insurance market. For these reasons, reinsurers will ultimately play a central role in determining which of the two scenarios (described above) emerge.”
While traditional quota share structures continue to dominate, the cyber reinsurance market is maturing. Reinsurers are increasingly deploying non-proportional structures like aggregate excess-of-loss, stop-loss, catastrophe event, and occurrence-based protections.
As demand shifts toward protection against specific tail-risk and aggregation threats rather than broad proportional risk-sharing, reinsurers are actively prioritising capital efficiency, systemic risk modelling, and portfolio construction.
This shift allows them to effectively manage cyber exposures that are becoming increasingly interconnected.
Furthermore, capital market activity in the Linked Securities (ILS) sector remains subdued. Hannover Re’s $35 million Cumulus Re parametric cloud-outage protection being the only new cyber ILS completed.
This transaction represents its third consecutive, and increasingly larger, renewal. Although established sponsors like Beazley, Chubb, and Hannover Re renewed ILS in 2025 and 2026, no new cedents entered the market, and AXIS and Swiss Re did not renew their public structures.
