First cyber ILS expected in 2023: Aon securities

The first public issuance of cyber-related Insurance-Linked Securities (ILS) could take place next year, according to Paul Schultz, chief executive of Aon Securities, the capital markets arm of broking giant Aon.

"I think everyone knows we'll get there at some point - we just haven't gotten there yet," Schultz said on Monday at a roundtable event at the Rendez-Vous de Septembre conference in Monte Carlo.

He predicted that the right conditions for a cyber ILS issuance would finally come together in 2023, although he also wryly acknowledged having made the same forecast in previous years.

Schultz noted that a handful of private transactions in collateralised reinsurance have already been done, laying the groundwork for a public ILS issuance, although he declined to say exactly how many.

He estimated that there are 12 to 16 fund managers who are willing to underwrite cyber risk in some shape or form. But he added that most end investors don't yet see a lack of investment in cyber as a missed opportunity.

ILS has been intensely discussed in the industry as a possible solution to a lack of adequate capital available for cyber insurance, much as catastrophe bonds emerged in the 1990s as a way of attracting more capital for insuring against natural disasters.

One of the key selling points of cat bonds is that their performance is not correlated with other investments, but it is still unclear whether the same is true of cyber.

"The probability of having an earthquake is completely uncorrelated to the trend of other assets," said Michele Marcovig, head of P&C treaty retrocession at Italian insurer Assicurazioni Generali. "I'm not saying this is not the case for cyber. Probably it is, but luckily enough, we don't have enough experience in terms of big cyber events to say that."

Panellists at the CyberInsurer.com roundtable in Monte Carlo were agreed that ILS will become an important source of capital for the industry, although investors remain cautious so far.

"There's an element of being in uncharted territory," said Anthony Cordonnier, global co-head of cyber at reinsurance broker Guy Carpenter. "There's a reason why it's not happened yet."