In recent developments from the insurance world, it appears that cyber ‘catastrophe’ bonds, known as cat bonds, are preparing to step into witness lights of public debt markets. Traditionally, these bonds, which offset tough-to-insure risks to capital market investors in exchange for substantial returns, have been focused on natural disasters such as storms. However, the expanding threat and subsequent potential impact of crippling cyberattacks has made them too significant to insure, leading to insurers capitalizing on this opening.
According to Artemis, a renowned research firm with a focus on insurance-linked securities, Beazley Plc, the conglomerate of specialist insurers that operates in the United States and Europe, is looking into the possibility of issuing a $100 million cyber cat bond. Concurrently, Axis Capital, another notable name in the insurance sector, is amidst similar pursuits.
The move to public debt markets, however, poses new challenges for these cyber catastrophe bonds. The real risks associated with cyber threats are largely unknown, casting a broad cloud of uncertainty over the possible fallout. Investors are therefore faced with a high-risk, high-return scenario where the likelihood of returns is undeniable but comes with similarly formidable risks.
The shift towards bringing cyber catastrophe bonds to public debt markets serves as an evident sign of the evolving nature of risk and underlines the urgent need to address digital threats more holistically. It will be interesting to see how global capital markets respond to this approach and the strategies they employ to navigate the undetermined landscape of cyber threats. As they prepare for new bond issuances, Beazley and Axis stand at the forefront of the industry’s venture into these largely uncharted waters, setting what could become a precedent for future insurance initiatives.
For more about these and other evolving trends in the world of insurance and cyber risks, reference the original coverage on Bloomberg Law.