Specialist re/insurer Beazley has now confirmed that it has sponsored a ground-breaking cyber catastrophe bond transaction, designed to cover remote probability catastrophic and systemic cyber events, with the potential for more deals later in 2023 and beyond.
It was reported earlier by the Financial Times that Beazley, the London headquartered specialist insurer and reinsurer, had launched the market’s first cyber cat bond.
The company has now confirmed this to be true, stating that this is the first time a liquid insurance-linked securities (ILS) instrument has been established for cyber catastrophe risks.
According to Beazley, the $45 million private section 4(2) transaction is fully tradeable under Rule 144A resale and provides the firm with indemnity against all perils in excess of a $300 million catastrophe event. Further, there’s potential for additional tranches to be released through this year and beyond.
As we reported earlier, this cyber bond is backed by a panel of ILS investors, including Fermat Capital Management, and was structured by Gallagher Securities, the ILS division of reinsurance broker Gallagher Re.
While the cyber risk market continues to expand, growth has been hindered somewhat by a lack of reinsurance appetite, with supply ultimately failing to keep up with growing demand.
Beazley notes that developing effective solutions for catastrophe risk is critical to allow the supply of capacity to the cyber insurance and reinsurance market to increase, which is needed to meet the growing demand for cyber cover from business and society.
Beazley’s Chief Executive Officer (CEO), Adrian Cox, said: “I’m proud that the high-quality of Beazley’s cyber underwriting has been recognised by investors in the placement of the market’s first cyber catastrophe bond. As a leader in this market, 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 of Fermat Capital Management, commented: “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.”
Gallagher Re’s UK CEO, Tom Wakefield, added: “Helping to bring new and alternative capacity into the global cyber (re)insurance market to keep pace with rapidly rising demand for risk transfer has been a primary focus of the Gallagher Re cyber team. 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.”
