Cyber reinsurance/insurance companies face pricing pressure and increased competition in mature markets, particularly the U.S., despite growth opportunities in underpenetrated regions and small and medium-sized players, according to new analysis from S&P Global Ratings.
Standard & Poor’s has given a stable outlook to the global cyber insurance industry, driven by its favorable profitability and expectations for continued strong performance in 2026.
The ratings agency’s latest cyber market survey noted that cyber insurers utilize significant amounts of reinsurance, with major insurers allocating an average of about 44% of premiums to reinsurers by 2024.
Reinsurance is the bedrock of stability in the cyber insurance sector, S&P said, emphasizing that large-scale cyber incidents such as a global ransomware attack or a widespread data breach can generate losses far beyond the capacity of a single insurer.
Therefore, by transferring a portion of its portfolio to a reinsurer, an insurance company can diversify risk, protect its balance sheet, and maintain the financial stability needed to offer higher limits and more comprehensive policies.
In addition, S&P noted that reinsurers provide valuable expertise in modeling and assessing cyber threats. Without reinsurance, many insurers would struggle to write large or complex cyber policies, limiting market growth and the ability to effectively respond to catastrophic cyber events.
According to the report, cyber reinsurers are proving increasingly willing to take on risk as ceding companies improve their underwriting discipline, technical underwriting capabilities and risk controls. The move to excess of loss treaties avoids conventional attrition losses and also helps reinsurers lower their combined ratios.
S&P said the combination of these factors resulted in net combined ratios of 88% and 89% in 2024 and 2023, down from 99% in 2022 and 104% in 2021, and this trend is expected to continue in the future.
S&P also believes that the cyber reinsurance market is in the early stages of maturing as an industry. This evolution highlights the growing complexity of reinsurers not only supporting premiums but also serving as active partners in helping insurers navigate the complex, rapidly changing cyber risk landscape.
Most active cyber insurance is still transferred to reinsurers on an independent, proportional basis, typically through quota share arrangements. In 2024, the quota share will account for approximately 76% of the total reinsurance risk transfer.
In addition, the cyber reinsurance market has adopted non-proportional structures, including excess loss and stop loss totals, catastrophe, event and event-based structures, and catastrophe bonds.
However, S&P warns that some cedents may challenge the value of non-proportional treaties, requiring them to demonstrate their value and attachment and preventing cedents from increasing self-reservations.
S&P said, “Reinsurance contracts may face pressure to expand working layers to more frequently capture losses below current attachment points. While this may increase the value of cedents, reinsurers may be reluctant to adopt this approach given the rapid evolution of cyber risk. Coverage expansion, further reductions in rates or relaxation of policy terms could quickly harm the profitability of cyber insurance.”
