APAC amongst fastest growing cyber insurance market: S&P Global

It grew 51.2% in the past five years but remains the second smallest market globally.

Asia Pacific (APAC) is seen as one of the fastest-growing regions for the past five years in terms of primary cyber insurance market, as reported by S&P Global.

The region was also accompanied by Latin America. North America and Western Europe, however, post slower expansion due to their larger market size.

The compound annual growth rate (CAGR) of APAC for primary cyber insurance and reinsurance for the 2018-2022 period respectively grew to 51.2% and 43.4%. The data is based on the ratings agency’s cyber insurance survey for global multiline insurers and global reinsurance groups.

Meanwhile, the CAGR for primary insurance and reinsurance averaged 36.2% and 58.0% globally.

“About 56% of gross premiums written (GPW) on affirmative cyber insurance--which explicitly covers cyber risk--are generated in North America; about 37% in Europe, the Middle East, and Africa; 6% in Asia-Pacific, and 1% in Latin America,” S&P Global said.

Cyber insurance is experiencing rapid growth within the global insurance market, S&P Global emphasised. 

In 2022, global cyber insurance premiums reached approximately $12b, and it's projected that they will continue to rise at an average annual rate of 25%-30%, reaching around $23b by 2025. 

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This growth is supported by reinsurance protection, making reinsurers crucial for the sustainable expansion of the cyber insurance market.

While the opportunities for insurers and reinsurers in the cyber insurance market are evident, there is a need to understand the underwriting risk associated with cyber coverage.

“Insurers and reinsurers are not immune to cyberattacks on their operations, and any service disruptions or data breaches will likely affect their bottom lines and potentially their capital positions,” S&P Global stated.

To gauge the potential impact, S&P Global Ratings analysed cyber exposure data using the Cyence cyber risk model developed by cybersecurity specialist Guidewire. 

The analysis found that, on average, GMIs and global reinsurers have the capacity to endure a direct cyberattack on their organisations with only a limited effect on their capital. However, some insurers might experience significant earnings impact from a direct cyberattack.

In 2022, primary insurers transferred a substantial portion of their cyber insurance premiums to reinsurers. 

Depending on the region, primary insurers ceded around 50%-65% of their cyber insurance premiums to reinsurers. This practice of ceding a significant portion of premiums to reinsurers highlights the integral role that reinsurance plays in enabling the expansion of the cyber insurance market.

S&P Global Ratings perceives reinsurers are expected to continue playing a crucial role in the establishment and growth of a robust and viable cyber insurance market. 

Reinsurers are a fundamental component of the cyber insurance landscape, as cyber insurers heavily rely on reinsurance to manage their risk exposure.