The cyber insurance market needs rate increases to preserve profitability, according to S&P.

The market remains a paradox, with threats increasing and driving demand for cover while rates have fallen for several consecutive quarters, the ratings agency says.

Abundant capacity and intense competition are eroding profitability, it warns. Cyber is at a crossroads – either rates increase or further drops lead to a period of losses pushing combined operating ratios above 100%.

Cyberattacks continue to grow in volume as criminals use AI to make hacks cheaper, faster and more scalable, S&P says.

“State-sponsored operations, cyber espionage and politically motivated attacks contribute to a structurally higher threat environment.”

S&P says insurers are fighting back, using AI for faster detection and response, and being disciplined in enforcing robust cybersecurity requirements. Clients are also increasingly resilient.

The ratings agency says a significant share of cyber exposure sits with reinsurers, and they will ultimately decide whether rates rise or fall.

“Cyber reinsurers hold the keys to market discipline as they set underwriting standards, shape pricing and promote consistent risk management across the cyber insurance market.”