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First public cyber cat bonds were an important test: CyberCube’s Baker


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2023 saw the first public Rule 144A cyber catastrophe bonds and these presented an important test for the market, laying the foundations for cyber risk to become an asset and opening the capital markets to those seeking cyber reinsurance and retrocession, Brittany Baker of CyberCube has said.

brittany-baker-cybercubeBrittany Baker, VP of Solution Consulting at the specialist risk modelling firm CyberCube, noted the important efforts that went into making 2023 such a success for the nascent cyber insurance-linked securities (ILS) marketplace.

“In 2023, we saw both the first private and public 144a cyber catastrophe bonds come to market. This was such a
fascinating moment in the cyber insurance industry, specifically with the 144a cat bonds, witnessing the financial markets starting to put a price on systemic cyber event coverage,” Baker explained.

Going on to explain that, “The work done by stakeholders in 2023 created a strong foundation to see this market grow in 2024. The first public cat bonds were always an important test as they would bring together transparency and templates for structure, modeling, and pricing.”

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Baker is participating in a panel session on cyber cat bonds at our upcoming ILS NYC 2024 conference. More details.

The market seemingly passed the test, with now four Rule 144A cyber catastrophe bond issues completed by sponsors AXIS Capital, Beazley, Swiss Re and Chubb, which takes the number of cyber cat bonds in our Artemis Deal Directory to seven, including the three private cyber cat bonds from Beazley.

Cyber risk is a peril that we’ve been writing about for more than a decade, in relation to the potential for cyber cat bonds, showing just how long it can take for a new class of risk to gain the scale and relevance in the marketplace where underwriters start to look to the capital markets for more meaningful reinsurance capacity.

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Baker of CyberCube pointed out one of the key areas of work that stakeholders spent significant time on to get the first full cyber cat bonds to market.

“One important structural piece was always how to define systemic cyber events. These transactions have to define how events will be classified as systemic, when they start, when they stop, and other structural items such as war and infrastructure exclusions,” Baker explained.

“Seeing which structures the financial markets accept and how they price them can hopefully point towards a more consistent future state.”

These efforts have been critical, but it’s just as important that the clear and transparent definitions remain, Baker said.

“In order for the ILS market to continue to grow off the back of the work done in 2023 there will need to continue to be straightforward, clear structures that allow investors to continue to begin their participation while getting more comfortable with cyber as an asset. Continued collaboration from stakeholders throughout the value chain is crucial,” she said.

Looking ahead, Baker hopes we’ll see more cyber cat bond activity this year.

She commented that, “I predict in 2024 we will see further development of the cyber ILS market to create a long-term sustainable and thriving marketplace.”

Adding, “Some key areas to watch include event-based reinsurance structures, how ILS capacity complements traditional capacity in this space, if new sponsors come to market in 2024, and how cat bond structures evolve as the market matures and investors provide feedback in both their words and their financial commitments.”

These first full cyber cat bonds have been an important test on many levels, of the appetite of cedents to access new capital sources once they become available, of investor appetite for cyber risk, of the market’s ability to structure a cyber ILS deal that can prove palatable to investors that may not have specialist cyber underwriters of their own, and also of the service providers needed to get a cyber cat bond to market.

With four deals completed in just a matter of weeks in the fourth-quarter of 2023, the test seems adequately passed by all parties and the cyber cat bond market is now well and truly open for business.

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