Bermuda plays a critical role in covering a substantial portion of the protection gap within the global cyber insurance market, a new report by the island’s financial services regulator has revealed.

The Bermuda Monetary Authority’s Bermuda Cyber Underwriting Report 2023 is based on its analysis of the cyber underwriting information from the 2022 annual filings for commercial insurers, insurance groups, and limited purpose insurers and reinsurers.

Out of the total $13.5 billion cyber gross written premiums written globally in 2022, as reported by Insurance Business Magazine, $7.5 billion was written by and/or consolidated into Bermuda groups and commercial insurers, the BMA said.

That was a 63.7 per cent increase from the prior year’s $4.73 billion.

Another $172 million was written by the captive sector in Bermuda.

Together, these two sectors constituted approximately 57 per cent of the global cyber GWP written in 2022.

In addition, the ILS sector provided a complementary capacity of $670 million in coverage through cyber-specific ILS issuances in 2023.

The report said: “As with the natural catastrophe line, the Authority recognises that third-party capital can complement traditional market capacity to address the large protection gap in cyber insurance risk.

“This insurance coverage gap is currently estimated to be $900 billion annually, second only to pensions ($1 trillion), but exceeds all other perils, such as natural catastrophes ($139 billion) and healthcare ($800 billion), according to a GFIA (Global Federation of Insurance Associations) report released in 2023.”

The BMA added: “While the cyber ILS market is still in its infancy, the growth potential is significant as the industry seeks additional capacity to meet the rising demand for cyber insurance.

“Advances in the sophistication of cyber models, coupled with the rise of parametric technologies, will likely promote and facilitate the increased use of ILS vehicles to complement traditional capacity.”

The aggregate number of cyber insurance policies surged from 200,000 in 2021 to 500,000 in 2022, the BMA said.

The report says reinsurance policies continue to dominate the market, accounting for 58 per cent of the overall distribution in GWP, while direct and package policies also saw significant growth.

Net written premiums also increased by 67 per cent to $5.58 billion in 2022, compared with $3.33 billion in 2021, indicating a continued increase in risk retention by Bermuda cyber policy writers as cyber models continue to develop.

Further, a few prominent players consisting of 15 commercial insurers, compared with 13 in 2021, comprised 80 per cent of the overall GWP for both years, with at least $100 million in GWP written each year, the BMA said.

Geographically, the United States continues to lead in the number of policies written, accounting for 49 per cent in 2022 — up from 45 per cent in 2021 — followed by worldwide covers (20 per cent), the United Kingdom (14 per cent) and Canada (12 per cent).

Commercial insurers reported the largest cyber claim per underwriting category, which was approximately $16.3 million for a single data breach for direct policies, compared with $15.1 million in 2021.

Reinsurance policies reported their highest loss claim at $11.5 million for ransomware, the same as in 2021.

Package policies reported their largest claim to be $3.8 million for malware compared with $15.1 million in 2021.

The BMA said direct policies have consistently been within the $15 million to $18 million range over the last five years. In contrast, reinsurance and package policies saw significant decreases in their largest claim by dollar amounts.

The BMA said incurred losses remained stable at $1.2 billion aggregate in 2022, with reinsurance policies contributing nearly 50 per cent of the total.

Loss ratios appear to have improved significantly, the regulator said, with an overall loss ratio of 22 per cent in 2022 compared with 37 per cent in 2021.

The Bermuda captive insurance sector experienced steady growth, with cyber GWP increasing by 14 per cent to $172 million in 2022, coupled with an increase in the number of captive insurers offering cyber policies from 28 in 2021 to 33 in 2022.

The BMA said a large part of the cyber insurance GWP continues to be written by a single captive insurer, which contributed approximately $89.9 million in 2022 (2021: $59.8 million), which was 52 per cent of the total GWP during the year.

Of the total cyber insurance premium written across the Bermuda captive market, 69 per cent was written directly by insurers in 2022, compared with 56 per cent in 2021, with the remaining 31 per cent written by reinsurers in 2022, compared with 44 per cent in 2021.

The BMA said the global cyber insurance market is projected to grow to $120.47 billion by 2032, exhibiting a 24.5 per cent compounded annual growth rate, according to Fortune Business Insights.

However, the regulator said, while the cyber insurance market grows in value, cybercrime is also estimated to cost between $6 trillion to $10 trillion annually, dwarfing the size of insurance coverage in place, according to CyberCube.

For the full report, see “Related Media”

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2023 Cyber Underwriting Report.pdf