Fitch: U.S. Cyber Insurers Saw Strong Profits, Slowdown in Premium Growth in 2023

The U.S. cyber insurance line generated strong direct underwriting profits for the second straight year in 2023, but written premium volume has stalled amid renewed pricing pressure, according to a Fitch Ratings analysis.

For standalone cyber coverage, the direct incurred loss and defense and cost containment (DCC) expenses ratio held relatively steady at 44% in 2023 versus 43% in 2022, Fitch found in a first look at data compiled from cyber insurance supplemental filings in statutory financial statements. Despite two poor-performing years in 2020 and 2021, this ratio has averaged a highly profitable 48% over the nine years that cyber supplemental data is available, Fitch commented.

“Favorable cyber underwriting results are partly due to prior large increases in premium rates. Insurers are also being more careful in cyber risk selection and the underwriting process,” Fitch said.

The ratings firm said insurers are “requiring that customers maintain proper cyber hygiene and risk management practices before agreeing to insure them.”

Additionally, insurers are tightening policy language to more strictly define terms, with more frequent insertion of sub-limits and exclusions, the report noted.

U.S. statutory direct written premiums for cyber coverage in standalone and package policies declined for the first time on record in 2023 by a modest 2%. This, Fitch said, represents a “sharp drop off” from market growth of approximately 200% from year-ending 2020 to 2022.

Fitch noted that the reversal occurred “even with continued growth in demand for coverage and carriers keen on expanding their cyber underwriting portfolios despite weaker pricing trends.”

The first look at data for the U.S. cyber insurance market tracks with Fitch Ratings’ outlook last April that there would be continued favorable cyber premium growth and underwriting results through 2023; however, pricing would likely moderate further in response to recent profits and competitive factors.