Cyber ‘Catastrophe Bonds’ Gain Traction Among Investors As Hack Attacks Soar  

Beazley Plc, a leading European and US specialist insurer, issued the market’s first cyber catastrophe (CAT) bonds earlier this year. The insurer is now considering issuing a new cyber CAT bond valued at $100 million, as reported by Artemis, a research firm focused on insurance-linked securities. Similarly, Axis Capital is readying a $75 million cyber CAT bond, according to a document obtained by Bloomberg.

CAT bonds transfer difficult-to-insure risks for major corporations to capital market investors for high-yield returns that have traditionally focused on natural disasters like hurricanes and floods. However, the soaring risks associated with cyberattacks have made cyber CAT bonds increasingly popular this year. 

Beazley’s cyber underwriting placed the market’s first insurance-linked securities (ILS) instrument of a $45 million cyber CAT bond in early January of this year. 

According to a report co-authored by Kathleen Faries, chief executive officer of Artex Capital Solutions, ILS “offer corporate boards and business owners a degree of comfort over their balance sheet resilience in the event of a larger cyber event.”

Investors told Bloomberg the proliferation of cyber CAT bonds is a welcoming sign and opportunity to increase exposure to the ILS space: 

“We are now seeing leading cyber underwriters positioning themselves to tap the ILS market with transparent deal structures that target catastrophe—rather than attritional—risk, in a form and at pricing levels that we believe have become attractive,” said Joanna Syroka, director of new markets at Fermat Capital Management, a top CAT bond investor. 

Syroka said Fermat “will consider all deals as they are announced,” adding, “Cyber could be the fastest growing line of ILS, in line with the growth rate of the underlying cyber insurance market, due to the relative lack of internal diversification within the peril.”

Beazley’s global head of cyber risks, Paul Bantick, said cyber losses for corporations mean “traditional reinsurance can’t get you there.” He said the new cyber CAT bonds will allow companies to fill the reinsurance gap. 

Just last week, DP World Plc was hit with a cyberattack across Australia, leading to 30,000 shipping containers piling up at ports. And multiple casinos on the Vegas Strip were hit with a cyber incident early this fall. 

Gallagher Securities’ head of cyber ILS, Theo Norris, said, “There are enough ILS investors to make a dent in the capital needs of the cyber insurance market.”

Beazley’s cyber CAT bonds were structured and placed by Gallagher Securities. Norris said the goal of the bonds is to “continue building on this to attract even more ILS investment to support our clients and ultimately make cyber insurance more available and affordable.” 

“I’m fairly confident we’ll use cat bonds to transfer cyber risk to the capital markets,” said Henning Ludolphs, a managing director at the German reinsurer. He said, “This could be sooner rather than later, maybe even within the next couple of months.”