Cyber cat bonds demonstrate potential for risk diversification – CyberCube

Bonds lay a foundational platform, study reveals

Cyber cat bonds demonstrate potential for risk diversification – CyberCube


By Kenneth Araullo

Is diversification within cyber as an asset class possible? A new whitepaper from a risk analytics firm delves into this possibility.

A recent study conducted by CyberCube has shed light on the cyber catastrophe bond market, revealing that diversification within this burgeoning asset class is achievable, despite the challenges posed by systemic cyber events.

The analysis, which focused on the four 144A cyber catastrophe bonds issued in the final quarter of 2023, showcased the introduction of $415 million in new capital through these instruments.

Also worth noting is that earlier this year, specialist insurer Beazley closed its first 144A cyber catastrophe bond, securing $140 million in coverage.

In its whitepaper, titled “Digital Ties and Natural Divides: Correlation and Diversification in Cyber Catastrophe Bonds,” CyberCube addresses investor concerns about the high potential for correlation among issuances.

The findings suggest that the issued 144A bonds lay a foundational platform for future innovations within the cyber insurance-linked securities (ILS) market, offering reassurance to investors about the diversification opportunities present in this emerging field.

Utilizing its probabilistic cyber catastrophe model, Portfolio Manager, the firm conducted an extensive analysis involving 50,000 simulation years to assess the correlation and diversification possibilities within the sector.

Jonathan Choi, CyberCube’s director of insurance risk consulting, further elaborated on the market’s potential for evolution.

“Today, the cyber catastrophe bonds that have gone to market cover a wide array of cyber risks under a single umbrella, mirroring the early days of the natural catastrophe bond market before it evolved to cover specific perils like earthquakes, hurricanes, and floods. As the cyber re/insurance market continues to mature, more nuanced approaches to managing systemic cyber risk will surface,” Choi said.

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