REFILE-US cyber DWP continues to shrink but price decreases begin to stabilise

By Michael Loney

April 25 - (The Insurer) - Premiums in the U.S. cyber market fell for the second year in a row in 2024 with rates remaining under pressure, according to a Fitch analysis, although brokers report indications of price stabilisation.

Fitch said in a commentary that U.S. cyber insurance premium continues to shrink. Direct written premiums fell for the second straight year in 2024 as a result of declining rates and fewer policies in force.

“U.S. cyber insurance renewal premium rates have fallen YoY for the last three quarters and are anticipated to remain under pressure in the near term barring a significant event,” the rating agency said.

The cyber insurance line was profitable in 2024, however.

But Fitch warned: “Carriers face ongoing challenges in maintaining underwriting discipline as market competition intensifies. Additionally, they must adapt to an evolving claims environment increasingly influenced by technological changes, including artificial intelligence, rather than regulations or case law.”

Fitch expects the cyber insurance market to experience periods of volatility as it evolves in terms of limits, terms and conditions, the regulatory and legal environment, and the cyber threats that could lead to claims.

The rating agency suggested that demand for cyber coverage should increase as corporate executives remain concerned about cyber exposure given the evolving risk landscape. It said that actual uptake rates vary significantly by industry sector and company size.

“Generally, larger, more sophisticated companies have some level of cyber insurance protection, but the likelihood of coverage and level of protection declines as revenues decline,” it said.

Fitch highlighted that statutory cyber financial data does not provide a full picture of segment profitability because direct results do not include all underwriting and adjustment expenses, and effects on premiums and losses from ceded reinsurance also are not considered.

There were revisions to the filing requirements for the statutory supplement for U.S. cyber insurance, with premiums now divided into three categories: primary, excess, and endorsement. Previously there were two categories: standalone and package.

“While the categories have changed, the totals remain comparable,” Fitch said.

PRICE DECREASES STARTING TO STABILISE

Brokers report that the price decreases in U.S. cyber market may be easing.

In a report released in April Aon said that buyer's market conditions continued through 2024 for cyber liability insurance amid a well-capitalised and competitive environment, despite an increase in claims frequency in 2024 and poor loss development in claims from prior years.

Aon data shows that cyber premiums fell 6.7% in 2024 on average.

“Abundant capacity has also led to a favourable January 1, 2025 reinsurance cycle, and an extension of buyer-friendly market conditions into the first half of 2025,” the report said,

Aon said that 21% of its cyber insurance purchasers added limits to their program in 2024.

“We saw pricing continue to decrease, but those decreases started to stabilise at the end of 2024,” says Matt Chmel, chief broking officer, cyber solutions in North America, at Aon. “What primarily drove the decreases was the marketing of excess placements in the national accounts segment, where there is a lot of capacity and competition.”

Lockton said a report in March that U.S. cyber insurance rate decreases are easing in response to the rising claims frequency and severity.

Lockton said the cyber market “remains generally favourable to buyers, although signs of some firming are emerging.”

In the fourth quarter, median pricing for total cyber insurance programs fell 4.5%, according to the broker’s data, a moderation from decreases of 5.1% in Q3 2024 and 6.3% in Q2 2024.

“While rates continued to decline in the fourth quarter, cyber insurers are pushing for flat renewals amid rising claims frequency and severity,” the report said. “Ransomware attacks are growing more sophisticated, technology disruptions are on the rise, and evolving privacy regulations are expanding litigation risks.”

Lockton’s expected range for cyber rate change for the next quarter is 10% decrease to flat.

“While reinsurers are examining their appetite and closely monitoring their deployed capacity, cyber is perhaps the only long-tail line for which reinsurance market conditions are favourable,” the report said. “This is largely due to primary cyber insurers' work to rebalance their own portfolios.”

This work includes avoiding overexposure to healthcare risks and large companies, and exercising caution around offering certain terms and conditions, particularly around policy language related to the wrongful collection of data.

“Some primary cyber insurers continue to offer favourable terms, but only for additional premium,” the report said.