Cyber insurance can’t hold its margin amid capacity surge, Fitch says
US cyber insurers won’t likely be able to hold the profitability levels achieved in recent years on rate gain as rising competition in the segment is heaping pressure on the top line, analysts at the Fitch rating agency have claimed.
“Current segment underwriting profitability at current levels is unsustainable as cyber insurance pricing is likely to remain flat or down going forward,” Fitch analysts wrote. “Carriers will face ongoing challenges to maintain underwriting discipline as market competition intensifies.”
Comments come as the US cyber market generated what Fitch considers “strong” direct underwriting profits for the second straight year in 2023, but with written premium volume stalling “amid renewed pricing pressure,” the agency said of the first look at 2023 statutory filings.
The direct incurred loss and defence and cost containment (DCC) expenses ratio held “relatively steady” at 44% in 2023 versus 43% in 2022, below the nine-year segment lifetime average of 48% that was boosted by heavy loss years 2020 and 2021. Improvement followed a massive market hardening that ultimately drew in a more recent burst of capacity.
Rates are down by chief measures. Fitch cites CIAB survey data suggesting average renewal premium rate increases were up less than 1% in the Q4 2023 survey while data from Marsh shows U.S. cyber renewal rates down for the last three successive quarters, including a 4% decline in Q4 2023.
For 2023, that means the first-ever decline in direct written premiums in cyber stand-alone and package policies at a “modest” 2% year on year.
The decline is a “sharp drop” from the triple digit growth 2020-2022 and occurred “even with continued growth in demand for coverage and carriers keen on expanding their cyber underwriting portfolios despite weaker pricing trends.”
Additional threats lurk in an “evolving claims environment” which remains “heavily influenced” by advances in technology, rising regulatory and compliance requirements that increase litigation risks as well as the unknown unknowns of cyber catastrophe. Modelling has developed, but the tools “remain less advanced than natural catastrophe risk models that have been refined over the last 30 years.”
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