Cyber market 'faced a reckoning' in 2020 as losses spiked: Fitch
Advisen
Cyber market 'faced a reckoning' in 2020 as losses spiked: Fitch
By Erin Ayers, Advisen
Cyber claims and claim payouts rose significantly in 2020, with the average paid loss rising to $359,000 per standalone policy from $145,000 in 2019, according to a new report from Fitch Ratings.
“The cyber market faced a reckoning in 2020 as loss experience deteriorated, particularly from an influx of ransomware incidents. While cyber insurance premium rates are rising sharply, concerns remain that underwriters can successfully price this business longer term, given constantly evolving risk exposures and sources of loss,” said James Auden, managing director for Fitch Ratings.
Cyber insurance direct written premiums increased 22% over the last year, bringing the U.S. market total to $2.7 billion and emphasizing the demand for coverage. Standalone policies grew at a faster clip than package policies, 29% compared to 14%.
That demand is unlikely to abate any time soon, according to Fitch, and the momentum behind rising premiums won’t subside in the near future.
“The magnitude of rate increases will support future improvement in cyber underwriting results; however, ongoing claims developments will likely dampen immediate progress in 2021,” said Auden.
Based on statutory filings, the industry ended 2020 with a 73% loss ratio, up markedly from 47% in 2019 and the five-year average of 42%. The direct loss ratio numbers includes losses and defense and cost containment expenses (DCC), and Fitch noted that reinsurance cessions may result in differences on net results for individual insurers. Individual direct loss and DCC ratios for the 10 largest writers of standalone coverage ranged from 114% to 29.7%. For package policies, ratios ranged from 87.4% to 2.4% for the top 10 writers.
Claims activity picked up significantly in 2020, with the number of reported claims at over 21,000, up from 13,000 open claims at the end of 2019, Fitch said, citing data from S&P Global Market Intelligence. In 2020, 5,200 cyber claims were closed with payment, according to the report, and the frequency of standalone cyber claims far outstripped the frequency on package policies.
The U.S. cyber insurance market continues to be dominated by large global players, Fitch reported. Chubb occupies the top spot for package policies, followed by CNA and The Hartford. In the standalone market, AXA XL writes the most policies, followed by American International Group (AIG), Beazley, and Travelers.
