
Bermuda cyber market is growing fast
Reinsurance continues to dominate the market as captives and ILS vehicles also grow, a Bermuda Monetary Authority report reveals.
Bermuda re/insurers play a significant role in the cyber re/insurance market , according to data from the Bermuda Monetary Authority and other sources, and they look primed to grow further as the market continues to expand.
While estimates on the size of the global cyber insurance market vary, Swiss Re estimated that there were gross written premiums of $13.9 billion in 2022, increasing to $14.4 billion in 2023. Numbers for 2024 are not yet available, but projections have it growing to between $15 billion and $20 billion.
The latest figures from the BMA put the Bermuda cyber re/insurance market at $7.75 billion, meaning the Bermuda market accounts for more than half of the total market, the BMA said.
But the BMA also noted that the size of the global insurance market is a fraction of the world of cybercrime, which estimated to cost between $6 and $10 trillion annually, dwarfing the size of insurance coverage in place, according to CyberCube.
“A substantial portion of the global cyber insurance premiums is either ceded to Bermuda-based reinsurers or consolidated into a Bermuda group or a large Bermuda commercial insurer,” the BMA said. “Bermuda is also home to the greatest number of cyber captives as well as large Insurance-Linked Securities (ILS) vehicles.
“This provides reinsurance capacity to traditional insurers to cover their own risk and enables cyber insurance coverage for large-scale and systemic cyber events. In consideration of this, the Authority continues to view cyber risk as a critical risk that requires ongoing review and a tailored approach in implementing its regulatory and supervisory frameworks.”
The BMA said Bermuda’s cyber insurance gross premium increased 63.7% from 2021’s $4.73 billion, while the aggregate number of cyber insurance policies surged from 200,000 in 2021 to 500,000 in 2022.
“Reinsurance policies continue to dominate the market, accounting for 58% of the overall distribution in GWP, while direct and package policies also saw significant growth,” the report said. “Geographically, the United States continues to lead in the number of policies written, accounting for 49% in 2022 (up from 45% in 2021), followed by worldwide covers (20%), the United Kingdom (14%) and Canada (12%).”
Through 2022, incurred losses appeared to be manageable at $1.2 billion aggregate, with reinsurance policies contributing nearly 50% of the total, and Bermuda companies generally outperformed their global rivals.
“Loss ratios appear to have improved significantly, with an overall loss ratio of 22% in 2022 compared to 37% in 2021,” the report said. ‘This is comparable to the decrease in the global cyber loss ratio from 43% to 68% previously, likely driven by both increases in premium rates and lower losses reported during the year.”
The report also noted that the captive insurance sector is also expanding its cyber coverage, with cyber GWP increasing by 14% to $172 million in 2022, coupled with an increase in the number of captive insurers offering cyber policies.
The BMA also noted that Bermuda-based insurance-linked securities were also growing; in 2023, Bermuda-based ILS vehicles issued a total of $670 million of aggregate insurance protection in cyber-specific ILS, which provided critical additional capacity to meet the rising demand for cyber insurance protection.
“A substantial portion of the global cyber insurance premiums is either ceded to Bermuda-based reinsurers or consolidated into a Bermuda group or a large Bermuda commercial insurer.”
Stress tests
The BMA also required companies to stress test their ability to withstand different scenarios and market events, and said “the market is generally resilient in terms of capital levels after applying post-cyber stress scenarios”.
But it added: “However, a number of insurers are expected to fall below their Enhanced Capital Requirement ratio. This highlights the need for insurers to monitor and enhance their capital buffers to manage this risk.”
The report added: “Overall, while the insurance industry has made strides in managing silent cyber exposures, data shows that the risk remains substantial. Continued efforts in policy clarification, risk assessment and regulatory collaboration are essential to effectively mitigating and managing these risks.”
Losses fell in 2022
The report noted that losses actually declined in 2022, falling to $570 million from 12,800 claims from $620 million for over 16,900 claims in 2021.
“These losses primarily resulted from reinsurance and totalled $315.6 million in 2021, compared to $228.2 million in 2020,” the report said. “This shift represents a significant change from prior years, where direct policies were the primary source of losses.
“Further, reinsurance policies contributed 55% of the total claims paid in 2022 compared to 37% in 2021, while direct policies contributed 44% of the total claims paid in 2022. Consistent with 2022, a few companies significantly contributed to the aggregate total claims paid.”
Despite the positives, the BMA said it was concerned that a few Bermuda companies could be exposed in the wake of a major cyber event.
Therefore it was imposing new requirements on the sector:
- Mandatory completion of stress/scenario testing exercises each year beginning in 2024
- Improvement in solvency self-assessments
- Issuance of a guidance note on cyber underwriting by the BMA
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