Cybersecurity giant, Beazley, takes a groundbreaking step with a $45 million cyber catastrophe bond issuance
Beazley Launches First-Ever Cyber Catastrophe Bond
In a groundbreaking move, Beazley, a London-based specialist insurer, has launched the first-ever cyber catastrophe bond. The innovative financial instrument, valued at $45 million, is set to revolutionise the cyber insurance market.
The cyber catastrophe bond, structured and placed by Gallagher Securities, the ILS-arm of Gallagher Re, gives Beazley indemnity for all risks in excess of a $300 million catastrophic event. John Seo, co-founder and managing director at Fermat Capital, one of the bond's backers, believes this deal marks an important step in unlocking capital market investment into cyber risk.
The surge in demand for cyber insurance, driven by the sharp increase in ransomware and sophisticated nation-state activity targeting critical infrastructure, has led to rising premiums and more rigorous underwriting standards. This new bond could develop into an attritional (working layer) component in the cyber insurance market, providing additional protection against cyber risks.
Sridhar Manyem, from AM Best, views the development of a catastrophe bond for cyber insurance as a credit positive for the sector. He further stated that the cyber catastrophe bond has the potential to become a part of cyber risk management. The bond, backed by a group of insurance-linked securities (ILS) investors, including Fermat Capital Management, could provide an insight into how the cyber market can develop prospectively.
Seo also mentioned that the well-structured bond together with Beazley's strong cyber underwriting provided the opportunity for Fermat Capital to invest. He believes that this deal creates a solid foundation for a future cyber ILS market. The additional tranches of Beazley's future cyber catastrophe bonds include coverage layers for cyber event losses, typically divided into several segments with varying levels of risk attachment and coverage limits to provide diversified risk protection.
The cyber catastrophe bond is more capital intensive and relies on reinsurance and capital market support, according to Sridhar Manyem. However, he also sees it as an innovation that the cyber insurance market was waiting for. The potential for additional tranches of the bond to be released in 2023 and beyond further underscores its significance.
Elsewhere, Mondelez reached a settlement with Zurich American in November over more than $100 million in claims stemming from the NotPetya attacks, highlighting the growing need for comprehensive cyber insurance solutions. The cyber catastrophe bond, therefore, represents a significant milestone in the history of the sector.
In conclusion, the launch of the first-ever cyber catastrophe bond by Beazley signifies a major step forward in the management of cyber risks. This innovative financial instrument, backed by ILS investors, could pave the way for a more robust and resilient cyber insurance market in the future.
