U.S. Cyber Market Is $2 Billion, Growing Fast, Profitable: Fitch

May 10, 2018

Cyber insurance coverage continues to be one of the fastest growing segments and represents a significant growth opportunity for U.S. property/casualty insurers, according to Fitch Ratings in a new report.

The market has attracted about 75 insurers, with Chubb and American International Group and XL Group leading in market share.

(Editor’s Note: Fitch corrected earlier mistaken information that had AXIS as leading cyber insurer.)

Aggregate statutory data for the P/C industry shows that stand-alone cyber direct written premiums grew by 7% in 2017 to $986 million. Stand-alone and package cyber premiums combined grew 54% to $2.0 billion for the year. Allianz projects that the cyber insurance market could reach $20 billion by 2025.

The industry statutory direct loss ratio for stand-alone cyber insurance fell to 35% in 2017 from 43% in the prior year. While direct results do not incorporate all claims and underwriting expenses, or the effects of reinsurance, this result is indicative of strong underlying profitability thus far in the cyber market, Fitch said.

“Profitable results in a new market are attracting competition to the cyber space,” said James Auden, managing director. “Roughly 75 distinct insurers wrote over $1 million each of annual cyber premiums last year alone.”

The good underwriting results may not last.

“As cyber underwriting exposure grows, more cyber incidents will be covered, generating claims that lead to weaker underwriting results,” said Gerry Glombicki, director. “From an individual underwriter perspective, the risk of naive capacity entering the market, growing rapidly without sufficient expertise and ultimately suffering outsized losses in cyber is an expanding possibility.”

Fitch analysts note that growth in package-related cyber premiums reflect expanding insurer efforts to specifically include cyber coverage and endorsements in policies that may hold cyber exposure but which lack explicit policy terms or premiums related to cyber risk.

However, they add that some of the growth in 2017 package cyber premiums also reflects variability and changes over time in how companies report cyber premiums in the statutory supplement.

Market share of stand-alone and package cyber coverage in 2017 showed the leaders to be Chubb Limited (15% direct market share); and American International Group, Inc. (11% direct market share) and XL Group (9% direct market share).

AIG remains the largest stand-alone cyber writer.

In its report on the cyber insurance market in 2015, when the market was $1 billion in direct written premium, Fitch also found American International Group, Chubb and XL Group led the market.

For 2016, when insurers wrote $1.35 billion in cyber business, Fitch ranked American International Group, XL Group and Chubb as the top three writers.

Berkshire Hathaway is not among the leading writers and that’s just fine with its chairman, Warren Buffett. Last week at Berkshire’s annual meting, Buffett said he believes the risk is unknown.

“I don’t think we or anybody else really knows what they’re doing when writing cyber” insurance, he said. “We don’t want to be a pioneer on this.”

Source: Fitch Ratings report: U.S. Cyber Insurance Market Share and Performance.

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