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Property/casualty insurers wrote $1.35 billion in direct written premium for cyber insurance in 2016, a 35 percent jump from 2015, according to reports by Fitch Ratings and A.M. Best.

The largest cyber insurance writers are American International Group, XL Group and Chubb, according to the reports. These companies had a combined market share of approximately 40 percent at year-end 2016. The top 15 writers of cyber held approximately 83 percent of the market in 2016.

Completing the top 10 writers of cyber ranked by direct premium written are: Travelers, Beazley, CNA, Liberty Mutual, BCS Å˽ðÁ«´«Ã½Ó³»­ (owned by Blue Cross licensees), AXIS Å˽ðÁ«´«Ã½Ó³»­ Group and Allied World.

Two carriers made big gains in cyber in 2016: Markel Corp. went from #116 in 2015 to #16 and Starr International Group rose to #18 from #110 in 2015.

More than 130 insurance organizations reported writing cyber premiums last year.

The tallies come from a cybersecurity and identity theft coverage supplement that has been part of annual P/C insurer statutory financial statements for two years now.

Fitch noted that the $1.35 billion figure taken from these statements likely underestimates the industry’s cyber premium exposure due to challenges in breaking out cyber-related premium from other coverages in multi-line coverage products.

Overall, cyber insurance was profitable — the direct loss ratio decreased from 51.4 percent in 2015 to 46.9 percent in 2016. A.M. Best attributed the decline to the majority of reported cyber attacks being related to ransomware heists, on which losses were well below the deductibles and a simple backup recovery worked to prevent negative long-term effects.

Those same ransomware attacks appear to be driving sales.

“Take-up rates for cyber insurance are increasing with frequent reports of computer hacking incidents, including network intrusions and data theft, as well as high-profile ransomware attacks that are leading corporations to search for broader insurance protection against cyber threats,” said Jim Auden, managing director, Fitch Ratings.

Standalone Policies

In its report, A.M. Best noted how the top cyber insurance writers have shifted their writings to standalone policies and away from packaged policies by nearly a 70-30 split on the $1.3 billion of total direct premiums written in 2016.

A.M. Best found that more than two-thirds, or 67.9 percent, of the $1.3 billion total direct premiums written in 2016 were on a standalone basis, with the balance reported as packaged policies. The top five writers reported 81.0 percent of their $699 million on standalone policies.

Insurers view standalone policies as more efficient and effective than packaged policies, A.M. Best said.

“This transition to standalone cyber policies may contribute to better pricing and reserving methods, which may ultimately lead to refinements in modeling tools and contribute to more accurate understanding of risk aggregation,” A.M Best said in its report.

Both rating agencies have warned insurers about adding too much cyber exposure because there is still much uncertainty about the pricing and underwriting of cyber risks.

A.M. Best cautioned that it is too early to determine if impressive projections of cyber growing to be a $7.5 billion to $20 billion market by 2020 will be realized. Demand for coverage increases after every reported breach but A.M. Best said it’s not certain this demand will be sustained.

Fitch analysts said the ultimate profitability of the P/C industry’s cyber insurance efforts will take some time to assess as the market matures and future cyber-related loss events emerge.

“Future growth in cyber premiums will likely come from more consistent polity terms and conditions as insurers gain better understanding of loss potential and coverage, better cyber underwriting models, as well as efforts to comply with increased cyber regulatory standards across numerous industries, particularly financial institutions,” said Auden.

The Fitch report is “Cyber Å˽ðÁ«´«Ã½Ó³»­ Market Share and Performance.”

The A.M. Best report is “Cyber Line Expected to be One of the Leading P/C Growth Areas.”

Related:

• AIG, Chubb, XL Lead in $1 Billion U.S. Cyber Å˽ðÁ«´«Ã½Ó³»­ Market: Fitch
• Fitch Urges Insurer Caution as Cyber Å˽ðÁ«´«Ã½Ó³»­ Demand Grows
• Cyber Liability Sales Show More Growth, Price Stability: Report
• Why 27% of U.S. Firms Have No Plans to Buy Cyber Å˽ðÁ«´«Ã½Ó³»­
• RIMS 2017: Why Cyber Should Be Treated as Standalone Å˽ðÁ«´«Ã½Ó³»­
• RIMS 2017: Firms Value Cyber Assets Highly Until Time for Å˽ðÁ«´«Ã½Ó³»­

Topics Trends Cyber Pricing Trends AM Best Property Casualty