Opinion: Cyber facility expansion is a bear signal for cyber rates
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Opinion: Cyber facility expansion is a bear signal for cyber rates

Since 1 January, the market’s potential descent into freefall has been closely watched.

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Increased capacity and broader coverage through cyber facilities is a negative sign for cyber rates, which are already falling even as the market grapples with continued ransomware challenges.

As reported recently by this publication, in the last week WTW has increased capacity by 50% on its CyXS facility to $75mn and added cyber physical damage cover as a standalone or blended option.

Participation on the facility has also expanded as the number of participating Lloyd’s insurers has doubled from seven to 14.

Similarly, Marsh also recently increased the capacity of its Echo excess cyber facility by 25% to $125mn.

At least two new cyber facilities have been introduced this year too, with CyCore being launched by WTW, offering limits of up to $20mn in primary coverage with a single lead insurer, and Cyber Secure from London wholesale broker Evolin, targeting SME and mid-sized clients with revenues of up to $100mn.

Growing facilitised capacity is the latest sign of increased appetite for cyber risk more broadly, even as the market peers into the precipice of a pricing fall-off.

However, whilst facility capacity may be growing, sources have told this publication that carriers’ individual lines sizes are not seeing similar increases this year. This will provide some offsetting influence to work against a pricing freefall.

That being said, facilities arguably have an outsized impact on the market in softening phases as they can amplify competition for portions of deals not written through facilities.

Rating freefall

Cyber rates began to slide last year after a period of major hardening, leading this publication and many in the market to speculate as to whether the cyber market could go into freefall in 2024.

Towards the end of last year, sources had already described the classic tell-tale signs of a coming acceleration of rate decline – doubling of line sizes, and a clear push for market share amid ambitious internal premium targets.

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As the year progresses, several firms have reported a concrete decrease in cyber rates in the UK and globally this year.

As Marsh reported, global cyber rates fell by 6% in Q1, compared to a 3% reduction in Q4 of last year.

While cyber rates fell in every region, the UK saw a 7% decrease, and in the US rates decreased 6%. The report said that in the US, excess rate reductions continued to drive down total program pricing due to the availability of excess capacity.

Threat landscape

The falling rates are coming against a backdrop of concern around whether further ransomware losses will pressure margins, even though significant rate gains have been taken in prior years.

According to the above-noted Marsh report, ransomware attacks have increased in frequency, sophistication and severity, and evolving privacy regulations also led to increased claims.

This concern has been echoed by CyberCube, which also stated that there has been an increased volume of ransomware attacks since April 2022, particularly on healthcare providers.

CyberCube noted that a healthcare attack could lead to significant attritional losses, and widespread damage.

This publication revealed that Change Healthcare did not have cyber coverage, which some sources suggested was a near miss for the market, as the attack resulted in UnitedHealth incurring a total $872mn impact to its Q1 earnings.

However, although the brunt of the loss was not shouldered by the market, the attack has still caused considerable concern due to the significant aggregation risk as the attack “has impacted thousands of small entities,” said Philippa Berry, CFC’s cyber product leader.

Some insurers have received a slew of loss notifications from other entities impacted by Change’s outages.

CyberCube has also warned that attacks impacting state and local governments during the 2024 US presidential election are expected and it foresees an escalation in the attacks perpetrated by state-nexus threat actors targeting critical infrastructure.

It is no surprise that this risk environment has cedants and brokers looking for broader cover and greater security over placements.

Commenting on the additional Marsh Echo capacity in April, Marsh UK cyber placement leader Serena France-Hayhurst noted that “as the severity, frequency, and financial impact of cyber threats continues to grow, organisations are seeking the broadest coverage options beyond what is available in the open market.”

But ultimately, rates decreasing, and facilities becoming larger and more abundant is a clear bear signal for the market.

This signal could see market participants at the starting line of a rapid race to the bottom on price.

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