Despite ransomware frequency picking up after a slowdown in 2022, analysts at JP Morgan still see the cyber insurance market as an “attractive area with strong profitability and good exposure growth potential in the coming years”.
Citing data showing a 176% year-on-year increase in ransomware attacks in the second quarter of 2023, they said.
“In the first half of 2023, attacks occurred in the education and professional services sectors, as well as in the manufacturing, financial services and technology sectors,” the firm’s analysts explained.
They continued, “While the percentage increase in ransomware itself was quite striking, we would note that the second quarter of 2022 benefited from a significant reduction in the frequency of ransomware claims.”
The analyst noted that Beazley’s most recent 9M 2023 statement highlighted that while ransomware attacks had increased, claims frequency had not.
“We believe that risk mitigation efforts in 2021/22 are also likely to have helped the company avoid the increase,” they said. Outside of ransomware, data breach/privacy events have remained at subdued levels,” the analysts said.
They continued: ‘However, margins are strong and pricing is still likely to reflect higher claims expectations given the dramatic correction.
“Outside of claims trends, we have started to see small reductions in pricing after a period of very rapid price improvement. Beazley’s latest pricing data shows a 4% reduction in cyber pricing at the 9M 2023 statement.”
However, the analysts noted that prices are more than 2.5 times higher than they were in 2020, which the firm’s analysts believe more than adequately reflects the risk of the frequency of ransomware claims.
In addition, the cyber market’s combined ratio in 2022 is ~74%, based on Aon’s data, “demonstrating that the class is highly profitable compared to many other parts of the P&C market”.
The analysts conclude, “Compared to many other classes of business, cyber insurance is more profitable on an underwriting basis. In fact, even in some of the more challenging years, the class still generated an underwriting profit.
“In 2022, based on US data, the combined ratio was 74%, significantly better than the average P&C market of ~99% on a long-term basis. In fact, with price increases from 2022 yet to be passed through, we expect profit margins to be even stronger than the 2022 level suggests.
“This means that even if frequency picks up again, there is a very strong base of profitability to absorb any increase, in our view.”
