Lloyd’s of London syndicate Beazley launches world’s first ‘cyber catastrophe bond’
Lloyd’s syndicate Beazley has launched the world’s first ‘cyber catastrophe bond’.
The insurer’s catastrophe bond protects Beazley’s balance sheet in the event it is forced to pay out more than $300m (£246m) in insurance on any cyber risk policy.
Catastrophe bonds have traditionally been used to protect insurers from natural disaster risks, through deals that see investors cover the costs of rare, highly-expensive events.
The Insurance-Linked Securities (ILS) see insurers pay their investors if no events occur within a certain timeframe, but see investors pay out if the cost of those events surpasses a certain threshold.
The launch of the new bond is set to let Beazley expand its cyber insurance offerings, by protecting the insurer from large-scale losses.
For investors, the bonds act as non-cyclical investments, that are not linked to movements in traditional financial markets.
Beazley chief executive Adrian Cox said: “As a leader in this market, we are at the forefront of delivering new solutions that are allowing the cyber insurance market to grow to the size that clients need.”
The launch of the new bond comes as step towards the development of a fully-fledged cyber insurance market, as businesses increasingly seek out insurance coverage for hacks.
Insurers have struggled to cover cyber risks, due to concerns a systemic attack could lead to overwhelming costs to the economy, that could in turn see the market hit with more costs than it could absorb.
In September 2022, Lloyd’s of London told its members to stop providing coverage for state-backed cyberattacks in warning such a hack could expose the City insurance marketplace to “systemic risks”.
Beazley’s new bond is backed by a panel of investors, including US investment manager Fermat Capital Management, and was issued by reinsurer Gallagher Re.
The launch of Beazley’s new cyber catastrophe bond comes on the back of research showing 2022 was a record year for cyberattacks.
The past year saw UK companies face a record 687,489 attempts to breach their systems, following a surge in the final three months of 2022, the report from tech company Beaming shows.