AM Best, an insurance credit rating agency and analytics provider, has observed that the U.S. cyber insurance industry has effectively split into two distinct submarkets.
One is led by surplus lines insurance companies offering stand-alone primary and excess cyber coverage, while the other consists of cyber extensions attached to broader commercial insurance policies. AM Best noted that the divisions did not perform equally, with third-party claims rising faster in the surplus line division.
AM Best’s latest survey results show that total U.S. cyber insurance premiums will increase from $7.1 billion a year ago to $7.5 billion in 2025. The agency attributed this limited growth primarily to the shift of certain network portfolios from offshore structures to U.S.-domiciled entities rather than any meaningful expansion of underlying domestic demand.
Fred Eslami, associate director at AM Best, explained: “It is worth noting that for several years now large companies with mature captive insurance companies and sophisticated cyber risk mitigation practices have been partially or fully exiting the commercial market and insuring their cyber risks through captive insurance companies. This is not reflected in the NAIC Cyber Supplement, which is the core source of information for this segment.”
AM Best also reported that the overall cyber insurance loss rate rose 4.3 percentage points from last year to 53.0%, rising for the second consecutive year. The agency highlighted that this was the first time since the surge in ransomware during COVID-19 that the 50% mark was exceeded, when widespread remote working initially put many organizations at risk due to weak security arrangements.
Christopher Graham, senior industry analyst at AM Best, commented: “The ransomware surge resulted in an immediate increase in pricing. However, this increase in loss rates occurred at a time when pricing was still declining or even accelerating.”
The report further shows that surplus lines continue to expand their reach and now account for nearly two-thirds of all cyber insurance premium volume. AM Best noted that while the compensated loss ratio for surplus line carriers has been lower than that for approved insurers since 2021, the incurred loss ratio tells a different story, at 55.9 compared to 50.2 for approved carriers.
Graham added: “The gap is actually narrower than last year. But higher loss rates in consecutive years suggest that surplus line carriers may be in a different business than admitted carriers, particularly one prone to longer tails, causing losses to take longer to resolve.”
AM Best also highlighted several wider trends affecting the industry. The report said there has been an increase in third-party claims, while class action lawsuits are more frequent, involving fewer claimants in each case. The agency noted that as organizations report data breaches, legal practices increasingly independently procure affected personal data and contact those directly affected.
The agency further noted that there are untapped opportunities in the SME sector. However, AM Best warns that the sheer size of the market could create cumulative risks if multiple SMEs are affected by the same cyber incident.
AM Best concludes that the outlook for the global cyber insurance industry has remained stable over the past year, citing underwriting practices remaining cautious amid an evolving cyber risk environment.
