Opinion: Beazley’s cyber cat bond is a potential game-changer

Beazley has launched the world’s first cyber cat bond, a milestone for the industry desperate for reinsurance coverage.

The $45m private bond will pay out to Beazley if total claims from a cyber attack on its clients exceed $300m, according to the Financial Times. The deal gives Beazley protection from “remote probability catastrophe and systemic events”.

Accessing the bond markets through the use of cat bonds could be a game changer for the cyber insurance market.

The global cyber insurance market is worth approximately $10bn, but this is expected to double within the next four years as more and more companies seek coverage for their cyber risk.

Paul Bantick, global head of cyber risks for Beazley, told CyberInsurer.com that he has already received indications from investors that they would be willing to support further issuances later this year.

“We have people that are already looking to commit for Q1, Q2 [2023] to grow this even further,” he said, adding: “And we've actually had a lot of new people phone us in the last 24 hours asking: ‘How would be able to learn more about this? Is there a way that we can invest in and be involved in it?’”

At present, about 50% of global premiums are reinsured, but traditional reinsurers like Munich Re, Swiss Re, Hannover Re and Scor are nervous about expanding too fast into cyber. 

They are concerned about aggregation risks in cyber and are finding good opportunities to deploy capital into more traditional lines of business. 

If the capital markets prove a useful and reliable counterparty for cyber insurers, it could remove what is generally seen as the main blockage to a much bigger cyber insurance market than is currently the case.

“Having a solution where we can keep providing clients with catastrophic cyber cover for all the new buyers that are coming online in the next three to four years is absolutely critical, and this is the first big step towards that,” Bantick said.

At last year’s reinsurance conference in Monte Carlo, in September, some reinsurers predicted that the capital markets would take up more of the slack and provide capacity to the likes of Beazley.

Beazley hopes to eventually tap the cat bond market to provide billions of dollars of reinsurance cover. The company said the cat bond could be followed by additional tranches this year and beyond.

The transaction, which was three years in the making, was structured and placed by broker Gallagher Re and bought by investors including Connecticut-based specialist Fermat Capital Management.

CyberCube’s Portfolio Manager was used as one of the modelling models informing the transaction. 

Beazley raised £350m in fresh capital in November to fund organic growth. 

Cyber brokers in the London say that many existing cyber insurers are dedicating more capital to cyber, putting downward pressure on rates.