The $45m bond gives Beazley protection against all perils in excess of a $300m catastrophe event
Beazley has launched the market’s first cyber catastrophe bond. This is the first time that a liquid ILS instrument has been created for cyber catastrophe risks.
The $45m private Section 4(2) bond is fully tradeable and gives Beazley indemnity against all perils in excess of a $300m catastrophe event, with the potential for additional tranches to be released through 2023 and beyond.
It is backed by a panel of ILS investors including Fermat Capital Management, and was structured and placed by Gallagher Securities.
The potential to transfer cyber risk to the capital markets has long been anticipated. Swiss banking giant Credit Suisse has issued a series of operational risk catastrophe bonds, which include coverage for cyber risk, but this is the first time standalone cyber has been securitised.
Beazley’s bond is designed to cover remote probability catastrophic and systemic events. Developing effective solutions for catastrophe risk is vital to allow the supply of capacity to the cyber (re)insurance market to increase, to meet growing demand for cover from business and society.
According to Jonathan Drake, partner and law insurance expert, DWF, the launch of the bond is interesting in the context of the dislocation in reinsurance markets generally but also given the specific concerns around the profitability of cyber insurance.
”Being done as private placement with a panel of investors means that there is less publicly available information about its structure,” he notes. “Coming however on the back of the recent capital raising by Beazley it shows that there are still capital market opportunities for reinsurance-type support for well-regarded underwriters even in classes of business that are proving to be challenging.”
Solid foundation for cyber ILS market growth
Adrian Cox, CEO Beazley, said: “We are at the forefront of delivering new solutions that are allowing the cyber insurance market to grow to the size that clients need.
”A key element of this facility is its flexibility to scale over time and support our continued, sustainable growth in cyber. I’d like to thank the investors and our brokers for their support in achieving this important milestone for the cyber market.”
John Seo, co-founder and managing director at Fermat Capital Management, LLC added, “As an ILS investor, we have been monitoring the cyber insurance market for several years waiting for the appropriate opportunity to invest. This well-structured bond together with Beazley’s strong cyber underwriting have provided the basis for us to do so.
”We believe this deal marks an important step in unlocking capital market investment into cyber risk and creates a solid foundation for a future cyber ILS market.”
Tom Wakefield, UK CEO, Gallagher Re, commented: “Beazley’s cyber expertise and proactive engagement with capital markets has proven them to be an instrumental partner in placing this first cyber catastrophe bond on their behalf.
”The calibre of ILS investors involved, and complexity of the class, demanded an underwriting business of high quality to ensure a successful outcome.
“Where carriers can demonstrate a similar approach, the opportunity exists for a strong and sustainable cyber catastrophe ILS market.”