Reinsurance broker Aon Benfield’s cyber insurance update for 2016 showed U.S. cyber insurance as profitable despite it being a line of business with above average loss ratios.
With cyber being the second top rated business risk throughout Europe and the U.S., the report shows insurers and reinsurers have made progress in leaps and bounds to respond to high level demand, cyber premiums are growing and the field is expanding, as new cyber solutions are created and refined.
“In 2016 US cyber premiums grew approximately 30 percent year on year, to USD 1.34 billion. As we expected to see, a growing number of insurers participated in the US cyber market in 2016, reducing the market share held by the largest players.
“In total, 138 insurers reported writing some cyber premiums in 2016, with 26 insurers writing premium in 2016 that did not in 2015. 69 insurers wrote more than USD 1 million, and 29 wrote more than USD 5 million. All these numbers are higher than in 2015,” said Aon.
The cyber report, based on data from 138 U.S. insurers’ underwriting cyber – revealed an average U.S. market combined ratio for cyber insurance at an estimated 87.3%, although cyber losses varied greatly among insurers – demonstrative of the segment’s potential for high loss volatility and also the industry’s fledging stages of cyber risk modeling and analysis.
The broker noted; “While 57.7 percent was the average loss ratio across all insurers, individual insurer results deviated greatly. Loss ratios among the top 29 underwriters varied between zero percent at the low-end to 1525 percent at the high-end.”
Standalone cyber insurance had a higher loss ratio, averaging 60% and 47% in pure losses with defense and containment costs (DCC) making up 10.0 points of the balance, while, according to Aon, package cyber policies showed a slightly lower average loss ratio of 53%.
These large loss ratio deviations, “emphasize the importance for insurers to manage their limits carefully as they grow in the cyber line. Larger portfolios are, on the whole, less swayed by large severity events, but offering larger limits is often a necessary step for growth.”
“This is a striking shift from last year, where the difference between standalone and package was nearly 16 loss ratio points,” stated Aon.
According to Aon, the cyber insurance space was dominated by first party claims in 2016, and these outnumbered third-party claims by a ratio of 1.4:1, showing a similar trend to 2015 claims.
Aon’s cyber report underlines both the profitability and volatility of cyber underwriting, helping re/insurers form a more sophisticated understanding of cyber risk, solutions and policies, as they move to provide cover for one of the fastest growing markets in the industry.
The clear evidence of cyber expansion underlines the progress being made in the field, and this growth is in turn catalysing the demand for reinsurance in cyber risk underwriting where high risk and loss potential requires a large capital pool to draw on.
