As cyber risks increase and rates fall, pushing the cyber insurance market to a critical crossroads, reinsurers will remain the backbone of the industry’s ability to transfer cyber risk.
That’s according to a recent report from S&P Global Ratings, which noted that the reinsurance market will become a major absorber of cyber accumulation risk as the size and interconnectedness of these exposures grow.
Increasing cyber threats and the potential for greater damage are increasing risks and claims costs. This environment has driven insurance demand, but rates have fallen for several quarters amid ample underwriting capacity and intense competition.
While insurers have maintained underwriting discipline to maintain broad-based profitability, S&P noted that the market is finally showing signs of a turnaround.
The multi-year decline in pricing is beginning to slow as underwriting margins tighten, with the U.S. market leading the deceleration in stable pricing.
S&P said this emerging dynamic creates two possible market scenarios:
- Scenario 1: The market gradually rebalances. In this case, continued market pressure would encourage insurers to implement controlled rate increases. This allows carriers to stay ahead of rising claims costs and keep combined ratios below 100%, thereby preserving underwriting profitability.
- Scenario 2: Delayed adjustment and challenging markets. If weak pricing discipline results in persistently low pricing, profitability could decline significantly over the next one to two years. This could trigger a market correction – similar to dynamics experienced by the cyber insurance market in 2021 or the global property and casualty (P/C) reinsurance market in 2023. Such adjustments can result in years of underwriting losses and force insurers to make sudden, disruptive changes, including sharp increases in premiums, reduced capacity and tighter underwriting standards.
S&P said: “The decline in cyber insurance rates is beginning to slow, and early signs of improved pricing discipline may help stabilize underwriting profitability and sustain the current reinsurance-dominated market structure. However, analysts note that adverse cyber loss trends and continued competitive pressures may challenge pricing adequacy and increase the risk that the market is underpriced.”
Cyber ​​insurance remains one of the most serious business areas for reinsurance due to its systemic and cumulative risk profile. Risk flows steadily from policyholders to primary insurers and directly to reinsurance markets, where a significant portion of global cyber risk ends up concentrated.
As a result, S&P expects that “reinsurers will remain the backbone of insurers’ ability to transfer cyber risk as the scale and interconnectedness of cyber risk grows, making the reinsurance market the primary absorber of accumulated cyber risk.”
The analysts added: “There remains ample reinsurance capacity in both proportional and non-proportional structures, leading to moderately loose reinsurance terms and continued competition among capacity providers.
“Cyber ​​reinsurers hold the key to market discipline as they set underwriting standards, set pricing and promote consistent risk management across the cyber insurance market. For these reasons, reinsurers will ultimately play a central role in determining which of the two scenarios (as discussed above) arises.”
While traditional quota share structures continue to dominate, the cyber reinsurance market is maturing. Reinsurers are increasingly deploying non-proportional structures such as accumulated excess losses, stop losses, catastrophe events and event-based protection.
As demand shifts towards protection against specific tail risks and aggregate threats rather than broad proportional risk sharing, reinsurers are actively prioritizing capital efficiency, systemic risk modeling and portfolio construction.
This shift enables them to effectively manage increasingly interconnected cyber risks.
Additionally, capital market activity in the linked securities (ILS) industry remains subdued. Hannover Re’s $35 million Cumulus Re parametric cloud outage protection is the only new network ILS completed.
The deal is its third consecutive update and continues to expand. Although established sponsors such as Beazley, Chubb and Hannover Re renewed their ILSs in 2025 and 2026, no new cedants entered the market, and AXIS and Swiss Re did not renew their public structures.
