Cyber underwriting profitability varies by insurance segment, says a Keefe Bruyette & Woods Inc. report issued Friday.
Professional liability lines, including cyber coverage, are reporting loss ratios of about 115%, according to the report by the New York-based investment banking firm. The report said about $1.5 billion of the $3.25 billion in current cyber premiums are within professional liability coverages.
In contrast, large-account stand-alone cyber coverages are reporting loss ratios of 40% to 50% and middle market accounts, those of firms with revenues of less than $1 billion, are reporting loss ratios of 10% to 20%.
“Smaller accounts’ low loss ratios reflect the fact that 80% of cyber incidents cost less than $1 million, while only 5% cost more than $20 million,” said the report.
The report said also that smaller account, stand-alone cyber’s very strong underwriting profitability is driving rates down by about 10%, and there are often higher limits.
The report said industrywide, 2018 gross written cyber premium growth should be about 20% to 25%, which is in line with recent year’s growth rates, and is expected to continue at least through 2020.
Fewer than 20% of commercial insureds buy cyber coverage, “implying significant growth potential through increasing penetration,” the report said.
The report said also that policy forms are slowly being standardized.
U.K.-based consultancy firm PricewaterhouseCoopers International Ltd. expects an increasing amount of insurance-linked securities capacity to back the cyber underwriting market as the technologies and risk models used to quantify exposures mature, Artemis.bm reports. A survey by PwC found that 75% of insurers are utilizing reinsurance capacity to manage the growth of their cyber exposures. The survey found that nearly 40% of the insurers are passing on at least 50% of their cyber exposures to reinsurance capital.