Underwriting cycle (hard market, soft market)

The underwriting cycle describes the recurrent alternation between two states of the insurance and reinsurance market. In a hard market, available capacity becomes scarce, premiums rise, terms tighten and insurers turn selective; this phase generally follows major losses or capital erosion that reduce risk appetite. In a soft market, capacity is abundant, competition drives premiums down and terms loosen, until a deterioration in profitability or a shock reverses the trend. This cycle is explained by several mechanisms, the effect of past results on available capital, the sometimes herd-like behavior of actors, and the adjustment lags inherent in an activity where the true cost of a policy is known only after the fact. Understanding one's position in the cycle is essential for an insured, who has an interest in structuring its programs differently depending on whether it is negotiating in a hard or soft market, as it is for an investor, since actors' returns vary sharply with the phase. The cyber market went through a particularly pronounced cycle, with an abrupt hardening around the turn of the 2020s under the effect of ransomware, followed by a softening as claims experience stabilized and capacity returned.

After a wave of ransomware, the cyber market entered a hard phase, with premium increases of several tens of percent and tightened security requirements, before softening once claims experience was brought under control.

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