Cyber Risks In A New Era: Reinsurers Could Unlock The Cyber Insurance Market

S&P Global Ratings report

Toronto, ON (Oct. 6, 2021) — The pandemic has changed the ways we shop, learn, and work, changing the shape of the cyber risk landscape. E-commerce is booming, brick-and-mortar retailers are shifting to digital platforms, and schools and offices have adapted to remote learning and working. In S&P Global Ratings’ view, these digitalization trends are here to stay and will inevitably lead to a higher likelihood of cyber incidents.

The demand for cyber re/insurance coverage has increased significantly, mainly because of a heightened and rising awareness of cyber risks. The pandemic exacerbated the huge cyber reinsurance protection gap by causing existing and new clients to request larger limits and more inclusions in their policies’ terms and conditions (T&C). In addition, some insurers are offering more-advanced services, including value-added assistance services, and we have seen a shift from nonaffirmative to affirmative (explicit) cyber coverage, leading to previously unrecognized premium volume.

As Losses Multiply, Rates Ramp Up

Unsurprisingly, given the boom in digitalization, the re/insurance industry has seen a substantial pick-up in cyber losses, with far higher combined ratios in 2020 and 2021 than in previous years. According to AON PLC, the cyber combined ratio in the U.S. increased by more than 20 percentage points to 95.4% in 2020, from 74.5% in 2019. This was mainly attributed to the growing frequency and severity of ransomware and social engineering claims. These include claims for business interruption, rising incident response costs, and extortion demands. As a result, market rates for cyber protection in the U.S. have shot up since 2019, based on the increase in reference premium. Even after this increase in premium, cyber business lines were not as profitable for the re/insurance players in 2020 as they had been previously.

To sustain long-term profitability, we anticipate that insurers will continue to restructure their cyber insurance offerings–increasing rates further and adjusting their T&Cs, particularly the exclusions. Some insurers also intend to further reduce their pay out limits, especially where contracts include ransomware or business interruption components. At the same time, they hope to increase retention levels through 2021-2023. Depending on the region and T&Cs, policyholders could expect rate adjustments of up to 100% because the risk level has fundamentally changed.

Key Takeaways

  • Prices in the cyber re/insurance market could rise sharply over 2021-2023; in some cases, doubling from the current levels. The pandemic accelerated digital transformation and increased systemic vulnerabilities, causing economic and insured losses from cyber to skyrocket.
  • We estimate that primary insurers pass 35%-45% of global cyber premium to reinsurers and rely on them for their expertise in managing potential accumulation risk and exposure to cyber risk.
  • Partnership between reinsurers and primary insurers could strengthen coverage and give greater balance sheet protection against frequent and high-severity losses. It could also support access to cyber-related services.
  • A more mature retrocession and insurance-linked securitization (ILS) market could increase capacity and support cyber market growth and could lead to better returns on capital because of efficient capital management further down the re/insurance chain.

Read more, including:

  • Reinsurers Offer Expertise Where Data Is Limited
  • Reinsurers As Partners
  • The Market Is Gaining In Diversity
  • Looking To Alternative Capital
  • 20 Years On, Adequately Priced Capacity Is Key

About S&P Global Ratings

S&P Global Ratings, part of S&P Global Inc. (NYSE: SPGI), is the world’s leading provider of independent credit risk research. We publish more than a million credit ratings on debt issued by sovereign, municipal, corporate and financial sector entities. With over 1,400 credit analysts in 26 countries, and more than 150 years’ experience of assessing credit risk, we offer a unique combination of global coverage and local insight. Our research and opinions about relative credit risk provide market participants with information that helps to support the growth of transparent, liquid debt markets worldwide. For more information, please visit

SOURCE: S&P Global Ratings

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