Cyber is still the fastest growing sub-sector of the global insurance market but unlocking its potential will depend heavily on reinsurers’ appetite to underwrite the risk, S&P Global Ratings says in a report. 

Annual premiums reached about $US12 billion ($18.55 billion) last year and are likely to grow an average 25-30% annually to reach $US23 billion ($35.5 billion) by 2025. 

“Cyber insurers use a significant amount of reinsurance. In our view, reinsurers will remain an important pillar in the development of a sustainable and effective cyber insurance market,” the S&P report says. 

The importance of reinsurers to the cyber market is reflected in the proportion of premiums ceded by primary insurers. 

Last year primary insurers ceded about 50-65% of cyber insurance premiums to reinsurers depending on the region. In Asia Pacific and North America the ratio was 50% each and in Europe 60%. 

“The reinsurance market and, eventually, the retrocession market will therefore be extremely important in providing capital and capacity to support further gross premiums written growth,” the S&P report says. 

Much of the recent increase in premiums was due to substantial rate rises – which helped the cyber market returned to profitability – rather than underlying growth in the size or volume of contracts. 

The frequency and severity of cyber claims, especially those involving ransomware attacks, have undermined the market's profitability in recent years. 

In response, re/insurers have reduced their exposure, increased rates materially, and tightened policy wording 

S&P says the industry will need to encourage more sustainable underlying growth that is not largely led by rate increases. 

“This growth will depend heavily on market participants addressing systemic cyber risk, more insurers providing coverage with the support and expansion of the reinsurance, retrocession, and insurance-linked securities markets, as well as more small-to-midsize enterprises purchasing cyber insurance.” 

At present many reinsurers are nearing the limits of the amount of cyber exposure they can and want to handle after a difficult 2022 marked by low profitability and even underwriting losses in their cyber portfolios. 

“We therefore expect more rate increases for cyber reinsurance business this year, as we have seen in the cyber primary insurance segment over the past two years,” the S&P report says.