Growing a cyber book presents both risks and rewards - AM Best report

Re/insurers urged to manage their portfolios appropriately

Growing a cyber book presents both risks and rewards - AM Best report


By Kenneth Araullo

While it has identified cyber insurance as a promising area for growth and innovation within the insurance and reinsurance sectors, AM Best cautions that expanding a cyber insurance portfolio could pose significant risks to a company’s financial stability if not properly managed.

In its market report titled “Cyber: Growth Potential and Pricing Environment Support Appetite Across Some European (Re)insurers,” AM Best discusses the intricate nature of the cover. This type of insurance involves substantial product risks and demands a high level of expertise, it stated, highlighting the varying approaches to cyber coverage among market participants.

The cyber insurance market has seen a tightening of rates following an increase in loss activity during the pandemic. Although there has been some moderation in rate increases lately, with prices even starting to decrease in some instances, the market remains attractive.

However, there is a varied approach to underwriting cyber insurance across the sector. Some insurers and reinsurers are very cautious about increasing their cyber risk exposures, with some looking to scale back their cyber insurance offerings. In contrast, others view the cyber insurance market as an appealing opportunity for expansion.

AM Best explains that it evaluates an insurer’s exposure to potential cyber losses and how these considerations impact the company’s overall capital management and allocation strategies. This assessment is a crucial component of the rating process.

The agency has observed that, while the potential for catastrophic cyber-related losses is currently seen as less than that for other types of catastrophes, there is a growing recognition of the importance of cyber risk. Insurers are increasingly integrating cyber risk considerations into their capital management strategies.

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