After a two-year phase marked by rate hikes and stricter terms, the global cyber insurance sector has regained profitability, reaching approximately $12 billion in annual premiums in 2022. With expectations of annual growth rates between 25% to 30%, this market is poised to surge to nearly $23 billion by 2025.
S&P’s analysis underscores the reliance of the rapidly expanding cyber insurance sector on reinsurance to secure capital and manage accumulation risks. Manuel Adam, S&P credit analyst, affirms, “Cyber insurance is still the fastest-growing subsector of the global insurance market. This sub sector relies to a great extent on reinsurance protection, and we believe reinsurers remain critical to the sustainable growth of the market.”
While insurers and reinsurers bolster the cyber insurance ecosystem, they themselves are susceptible to cyberattacks that could disrupt operations and compromise their capital positions. S&P employed the Cyence cyber risk model to analyse cyber exposure data from cybersecurity specialist Guidewire, revealing that the GMIs (global multiline insurers) and global reinsurers evaluated by the agency could generally withstand direct cyberattacks with a limited impact on capital.
However, certain insurers could face substantial earnings losses as a result of cyberattacks, with S&P estimating a significant cyber tail loss of approximately 90% of average annual earnings over a five-year period for one insurer.
This finding emphasizes that potential cyber losses could surpass average figures due to factors such as lower profitability or gaps in cyber risk management. Such circumstances could erode insurers’ earnings and impede the accumulation of capital buffers, thereby diminishing their creditworthiness over time.
S&P envisions a maturing cyber reinsurance market as the cyber insurance sector continues to evolve. Despite leading reinsurers approaching capacity, the report indicates that other reinsurers are exploring opportunities to amplify their exposure to cyber risk. This strategic approach to growth promises a responsible expansion of the market with a diverse range of reinsurers contributing to its development.
As the global cyber insurance market gains momentum, its partnership with the reinsurance industry will remain pivotal in shaping its trajectory and long-term success.
