Beazley raises US$45m cyber cat bond

Posted 09/01/2023 – Quick takes

The Financial Times (FT) reports that Beazley plc has issued the first ever cyber catastrophe bond via a private offering to capital market investors.

The bond is said to have raised US$45m of capital. Buyers are reported to include the insurance-linked securities (ILS) specialist Fermat Capital Management.

The terms of the bond have not been made publicly available, but Gallagher Re was the structuring and placement agent. The market for property catastrophe bonds is a relatively mature one, but this is a new avenue for the ILS space.

The bond is thought to have been structured to cover remote cyber risks for Beazley and requires total claims from a covered cyber-attack to exceed US$300m. The FT describes this as reinsurance cover for “remote probability catastrophe and systemic events” that will help protect Beazley’s balance sheet.

Beazley’s CEO, Adrian Cox, told the FT that cyber cat bonds will help (re)insurers access a larger source of capital to support cyber risk exposure. Cox said that such bonds tap into “a pool that is trillions [of dollars] rather than hundreds of billions [of dollars] and is a pathway for us to be able to hedge and grow.” Cox also said that Beazley wants to increase its access to capital markets via such cat bonds in order to “provide billions of dollars’ worth of reinsurance cover” over time.

This initial cyber cat bond may well be followed by additional tranches later this year.

John Seo, co-founder of Fermat Capital Management, told the FT that the cyber cat bond “marks an important step in unlocking capital market investment into cyber risk and creates a solid foundation for a future cyber [insurance-linked securities] market.”

Alpha comment

It is perhaps no surprise that Beazley is the first underwriter to access this nascent capital pool given its leading position in the field of cyber insurance underwriting.

It is also encouraging that this class of underwriting is able to access such sources of capital in order to allow it to grow – a class that Alpha has been highly supportive of over the past few years, particularly since the advent of ransomware shortened the tail of the class.

Alpha will provide more information on this cyber cat bond once it has received feedback from Beazley.

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