In a welcome innovation which has been positively received by the market, Beazley is the first insurer to launch a cyber catastrophe bond, according to a press release from the carrier dated 9 January 2023. The story was then widely reported in the press. The bond provides Beazley with protection for losses exceeding US$300m from a cyber cat event. The initial bond is $45m but further tranches are envisaged.
One reason for welcoming this facility is the increasing focus that insurers generally will be required to manage exposure to systemic risk. While insurers have always faced systemic risks, the evolving nature and increased scale of such risks is attracting increasing scrutiny. Cyber risk is plainly a systemic risk, in respect of which there is significant transfer to insurers. The PRA has been highlighting for a number of years its concerns about cyber, including in its latest Dear CEO sent this January. The cyber cat bond is thus a welcome tool in protecting an insurer’s balance sheet, to be deployed alongside other risk mitigation techniques such as more traditional forms of reinsurance.
A further reason to welcome this development is that it will help underpin ambitions for growth in cyber underwriting. For a leading player in the cyber market we anticipate that this was an important consideration in launching the bond. Cyber is unusual in the rate of growth that is anticipated and insurers will need to take in their stride difficult underwriting years (as experienced by some of late due to escalating demands in ransomware attacks) as well as the good times. The additional scrutiny of a carrier’s underwriting required to make the risk transfer attractive to ILS investors will carry with it both a burden and a benefit, but again we contend that overall this is to be welcomed.
