Global demand for cyber insurance is expected to remain strong despite a more competitive market, which could create opportunities for Bermuda's captive insurance, reinsurance and insurance-linked securities sectors, according to a new report from AM Best.

The ratings agency maintained a stable outlook for the global cyber insurance market, citing digitalisation, stricter regulatory requirements and growing awareness of cyber-risks. While growing competition has pushed premium rates lower since 2023, AM Best said the sector should continue to be profitable.

“Our stable outlook on the segment reflects solid demand for coverage, even as the market pricing softens, in addition to favourable profitability over the intermediate terms and the growing use of AI,” said Cristian Sieira, senior financial analyst, AM Best.

The outlook echoes points raised at the recent Bermuda Risk Summit, where industry leaders said cyber insurance was entering a new phase of growth despite softer pricing and concerns about systemic risk.

John Huff, chief executive of the Association of Bermuda Insurers and Reinsurers, said at the time that cyber was becoming “more of a protection product versus a traditional indemnification product”.

He added: “We are not just putting money back into the ceding company, but also providing some expertise.”

Global cyber insurance premiums surpassed $16 billion in 2025, AM Best said, although growth slowed from previous years as abundant capacity and competition weighed on premium growth.

Bermuda already plays an outsize role in the global cyber insurance market. According to Bermuda Monetary Authority data published last year, Bermuda insurance groups wrote $7.5 billion of the world's $13.5 billion in cyber insurance premiums in 2022, representing about 57 per cent of the global market. Bermuda captives wrote a further $172 million in cyber premiums, while cyber ILS provided another $670 million in capacity.

One area of particular relevance to Bermuda is the growing use of captive insurers.

“Organisations that have strong cyber hygiene and historically good loss experience are finding it more beneficial to pay their own captive, keeping the money under the same parent, thus keeping the benefit of their own good experience,” the report said.

This trend may also partly explain slower growth in cyber premiums, as captive business is generally not reflected in US regulatory filings.

Reinsurers also still play an important role in cyber insurance capacity, with the market seeing a gradual shift towards non-proportional protection, including excess-of-loss covers to protect against larger losses.

There is also a growing, although still relatively small, role for ILS in the cyber market. AM Best estimates that more than $1.3 billion was deployed through 144A cyber catastrophe bonds during 2025, with transactions becoming larger and more sophisticated. The report noted that Beazley's $300 million Pole Star 2026-1 cyber catastrophe bond was one of the largest cyber ILS transactions completed last year. The bond was issued through a Bermuda special purpose vehicle.