Cyber ILS critical to help market evolve and grow: Paul Bantick, Beazley

The cyber risk market is projected to triple in size over the next three to four years, and for that growth to be achieved, solutions like the first cyber insurance-linked securities (ILS) transaction will be vital, according to Paul Bantick, Global Head of Cyber Risks at Beazley.

The specialist re/insurer announced this week the launch of the market’s first cyber bond, which provides Beazley with $45 million of indemnity reinsurance protection against all perils in excess of a $300 million cyber catastrophe event.

The cyber insurance market has been growing for some time but needs to increase the supply of reinsurance capital to ensure it remains a vibrant space.

Against this backdrop, we spoke with Beazley’s Global Head of Cyber Risks, Bantick, about the London Headquartered re/insurer’s debut cyber ILS deal, and what this means for the broader cyber insurance and reinsurance world.

“The cyber market is roughly $10 billion in terms of its global size today, and that’s predicted to get to $30 billion in the next three to four years,” said Bantick. “And for that growth to happen, we have to keep evolving as a market, and we need to provide cover for catastrophic events.”

The company and market’s first cyber ILS transaction, he continued, “is one part of that journey.”

“Cyber was always going to come of age and finding these types of support and solutions will be critical to get to a $30 billion market, and to be able to provide systemic cover to our clients that they increasingly need,” said Bantick.

All in all, Beazley and its partners worked on the deal for nearly three years, and, as with any market first, there were challenges and hurdles to overcome.

According to Bantick, one of the main challenges was around education. “It’s no different than when you’re talking to a new client about cyber; a lot of the funds and the investors want to understand cyber, how we underwrite it, how we view the risk, how we manage it, manage the downside, how we think through what the outcome would be if certain cyber-attack events were to happen.”

“And, so, I think it’s just been a long journey of building confidence and education with partners, and that’s what you’re seeing the result of today,” he explained.

In spite of consecutive years of elevated catastrophe activity, including from secondary perils, capital market investor appetite remains solid for property catastrophe risk.

However, the property market is going through a challenging time, and combined with the desire from some investors for diversification outside of the nat cat space, and the need for more capacity in the cyber market, Beazley’s initial cyber bond seems to have come at a beneficial time for all.

In terms of ILS investor sentiment, Bantick told Artemis that feedback has been “absolutely fantastic”, and that “everyone was very excited.”

“If you think about it, at year-end the cat market is in a very unusual place, so unsurprisingly investors were very excited about us bringing the first cyber bond to the market. And, actually, since then, we’ve had a lot of people contacting us saying that they’d love to get involved at some point during 2023,” said Bantick.

He went on to explain that Beazley plans to add to the initial transaction throughout the year.

“The development of a cyber catastrophe bond market is what we’re going to need to keep growing and provide clients with the coverage that they need, in the next two, three, four, five years. And, so, this is about the long-term future of the cyber market,” said Bantick.

The first transaction is sized at $45 million, which, for a private placement, is by no means small, although it is smaller than many traditional 144a property catastrophe risk bonds.

Bantick explained that this is a great starting place.

“Obviously, property started somewhere, and we have to start somewhere. We’d like to grow it as big as we can, over the coming years, and I think that’s going to be one of the critical things that the cyber market needs to do and evolve, to be able to meet the growing demand,” he said.

Also read:

– Beazley secures $45m cyber cat bond with Fermat Capital a backer.

– Beazley “proud” cat bond investors backed its “high quality” cyber underwriting: CEO.

– Beazley’s cyber cat bond used Artex SAC vehicle & CyberCube model.