Beazley launches historic $45M cyber catastrophe bond

Beazley, a London-based specialist insurer, said it has launched the first-ever cyber catastrophe bond, marking a milestone in the history of the sector. 

The $45 million bond gives Beazley indemnity for all risks in excess of a $300 million catastrophic event. The company said there is potential for additional tranches to be released in 2023 and beyond. 

The bond is backed by a group of insurance-linked securities (ILS) investors, including Fermat Capital Management. It was structured and placed by Gallagher Securities, the ILS-arm of Gallagher Re. 

John Seo, co-founder and managing director at Fermat Capital, said the company has 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,” Seo said in the announcement. “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.”

The announcement comes at a critical time for the cyber insurance market. The sharp increase in ransomware and sophisticated nation-state activity targeting critical infrastructure have led to a surge in demand for cyber insurance, rising premiums and more rigorous underwriting standards. 

Just in November, Mondelez reached a settlement with Zurich American in a 2018 suit filed over more than $100 million in claims stemming from the NotPetya attacks. Insurance companies have historically not covered claims related to malicious cyberattacks that were considered acts of war. 

Sridhar Manyem, senior director, industry research and analytics, at AM Best, said the development of a catastrophic bond is a credit positive for the sector. 

“It provides an insight into how the cyber market can develop prospectively into an attritional (working layer) component and a [catastrophe] component that is more capital intensive and relies on reinsurance and capital market support,” he said via email. “This is an innovation that the cyber market was waiting for, and with improved understanding of the risk and modeling, this has the potential to be a part of cyber risk management.”

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