Beazley launches first catastrophe bond for cyber threats

Lloyd’s of London insurer Beazley has launched the first cyber catastrophe bond, a new milestone in the cybersecurity and insurance sector. The bonds will target a hot, growing part of the underwriting insurance market as companies and government institutions seek protection from cyberattacks, ransomware, and hacking.

Beazley announced the initiative on its blog, stating that “this is the first time that a liquid Insurance-Linked Securities (ILS) instrument has been created for cyber catastrophe risks.”

The statement continues, “The $45 million private Section 4(2) bond is fully tradeable under Rule 144A resale and gives Beazley indemnity against all perils in excess of a $300 million catastrophe event.”

The bond’s structure intends to protect the insurer’s balance sheet in a catastrophic cyber event. It was placed by broker Gallagher Re and bought by investors including Fermat Capital Management.

The company said there is the potential for additional tranches to be released in 2023 and beyond.

Cyber bonds a necessity in the surging cyber insurance premium market?

Cybersecurity insurance has skyrocketed in recent years, as the frequency and severity of attacks have surged. According to the Financial Times, the cyber insurance market takes in about $10 billion in annual premiums, but industry estimates project it could reach over $40 billion in the next few years.

Sophos, based in England, found that the average cost of remediating a ransomware attack grew from $761K in 2020 to $1.85 million in 2021.

But Beazley CEO Adrian Cox pushed back against Zurich boss Mario Greco, who told the Financial Times last month that cyberattacks were becoming “uninsurable.”

While cybersecurity insurance policies would not cover war or state-sponsored attacks, the insurance industry has proved “perfectly capable” of absorbing the costs of cyber disruption to fuel pipelines, according to Cox.

Furthermore, acts of war or state-sponsored attacks are typically not covered under non-cyber premiums, either.

“I would stress what insurance can do rather than what it can’t,” Cox added.