CyberCube’s analysis of all the 144A cyber catastrophe bonds issued to date shows that diversification within cyber as an asset class is possible.
In a recent white paper titled “Digital Ties and Natural Divides: Correlation and Diversification in Cyber Catastrophe Bonds” – the firm addresses the concern amongst investors regarding the presumed potential for high correlation between issuances.
The company emphasises that diversification is possible within the asset class, and this is despite systemic cyber events not accumulating across easily visualized fault lines.
The white paper also examines the specific characteristics of the four 144A cyber catastrophe bonds issued in Q4 2023 and the potential correlation between them.
Combined, the cyber catastrophe bonds provided $415 million of new risk capital.
Brittany Baker, Head of Solution Consulting, CyberCube, said, “The research leverages CyberCube’s unique position as the only modeling vendor to have worked with all sponsors to provide an expert view of risk for all the 144A cyber catastrophe bonds that have gone to market to date.
“By going beyond a surface-level analysis of potential systemic cyber losses, we hope this whitepaper enables investors to understand the diversification potential between bonds within this new asset class.”
CyberCube used its probabilistic cyber catastrophe model, Portfolio Manager, to run 50,000 simulation years to create the overall event set of potential systemic cyber events.
The white paper concludes that the 144A cyber bonds issued so far provide a solid base for future innovation. This analysis aims to provide investors with more comfort that there is diversification to be found within the nascent cyber insurance-linked securities (ILS) market.
Jonathan Choi, Director, Insurance Risk Consulting, CyberCube concluded, “Today, the cyber catastrophe bonds that have gone to market cover a wide array of cyber risks under a single umbrella, mirroring the early days of the natural catastrophe bond market before it evolved to cover specific perils like earthquakes, hurricanes, and floods.
“As the cyber (re)insurance market continues to mature, more nuanced approaches to managing systemic cyber risk will surface, unlocking innovative strategies for the transfer of cyber risk.”
