Specialist insurer and reinsurer Beazley has launched a $45 million cyber catastrophe bond, providing the carrier with protection against “remote probability catastrophe and systemic events”, opening up a much larger source of capital for the firm, according to a report by the Financial Times.
It’s been described as the first cyber catastrophe bond, and is structured to pay out if total claims from a cyber event on Beazley’s clients exceed $300 million.
According to the report, the launch of the private bond is the result of a three-year project and was both structured and placed by reinsurance broker Gallagher Re, and brought to investors by Fermat Capital Management.
Details of the transaction are scarce it seems, with the report from the FT suggesting that the interest rate on the deal was not disclosed, although, Beazley has told the publication that the cyber bond could be followed by more tranches this year and beyond.
“What that taps into is a pool that is trillions [of dollars] rather than hundreds of billions, and is a pathway for us to be able to hedge and grow,” Adrian Cox, Beazley’s Chief Executive Officer, told the FT. The company also hopes that this deal will be scaled to provide billions of dollars of reinsurance cover for cyber exposure in the future.
John Seo, Fermat’s Co-founder, explained to the FT that the deal “marks important step in unlocking capital market investment into cyber risk and creates a solid foundation for a future cyber [insurance-linked securities] market”.
Cyber risk as a class of business is seen as attractive to some capital markets and ILS fund investors, and it’s felt that capital from beyond the traditional insurance and reinsurance markets will be needed when a truly major attack takes place.
Of course, cyber ILS have been transacted before via private collateralized reinsurance deals, which have been largely bilateral in nature. But with this being called a cyber catastrophe bond, it is more likely an excess-of-loss reinsurance or retrocession arrangement, although, this remains unclear at this time.