Global insurance and reinsurance broker, Aon, has collaborated with Hudson Structured Capital Management Limited (HSCM) on the launch of a new product designed to protect re/insurers against systemic and catastrophic cyber events.
Driven by growing awareness at C-suite level, reputational risk and regulation, alongside an increasing number of cyber attacks, the cyber insurance market continues to expand, with premiums expected to hit $20 billion by 2025.
But while insurers play an important role in providing cyber coverage for businesses to protect their assets, the supply of traditional reinsurance for the peril is being challenged by demand.
In response, Aon states that its new product enables insurers and reinsurers to rethink access to capital with a new source of alternative, third-party or insurance-linked securities (ILS) capacity and protection from the capital markets.
The new cover allows for limits of up to $70 million and provides protection against increasing cyber loss aggregations on insurers and reinsurers’ balance sheets.
Aon and HSCM have confirmed the successful closing of the first transaction, a retrocession contract on behalf of an undisclosed cedent.
The broker explains that the product is structured to protect the cedent from the effects of catastrophic cyber market losses emanating from events such as self-propagating malware or wiperware, distributed denial of service, a significant cloud outage, or certificate revocation.
Luke Foord-Kelcey, International Head of Cyber at Aon’s Reinsurance Solutions, commented: “In addition to increased claims activity in the cyber market, the current global crisis has emphasised the need for re/insurers to protect for systemic events. We are enabling carriers to navigate new forms of volatility by expanding the cyber reinsurance and retro markets to address this risk’s inherent systemic exposures.
“Our methodology allows us to develop event definitions that achieve clarity and confidence for all parties. Combined with the multi-model approach from Aon’s dedicated cyber analytics team, this has enabled us to develop a platform with HSCM that allows capital markets to participate in the fast-growing cyber sector in a manner that works for both cedents and investors and, importantly, that enables investors to fund limits previously unseen in this space.”
Edouard von Herberstein, Partner & Chief Underwriting Officer (CUO), HSCM Bermuda, added: “We are excited to help cedents transfer their cyber risk through this innovative and ILS-friendly structure with Aon. This is a great example of insurance and ILS markets offering risk transfer solutions for intangible assets, an area of the market where we expect to see a growing number of opportunities in the years to come.”