The landmark first cyber catastrophe bond sponsored by London headquartered global underwriter Beazley was issued using an Artex Risk Solutions cat bond and collateralized reinsurance note issuance vehicle, while the risk analysis was undertaken using a risk model from specialist firm CyberCube, Artemis has learned.
The deal was announced this morning and being a Section 4(2) privately placed catastrophe bond transaction details were limited, but some more have come to light throughout the course of the day.
We’ve learned that Artex Risk Solutions’ segregated account reinsurance transformer platform, Artex SAC Limited, was the chosen issuance vehicle for the cyber cat bond arrangement.
The Artex SAC Limited structure is a Bermuda domiciled company, which has been regularly used by Artex Risk Solutions as a vehicle to facilitate private cat bond transactions, or issuances of collateralized reinsurance notes, for sponsors and investors.
The Artex SAC structure acts as a transformer of risks and also a vehicle for securitization that issues investable notes. The issued notes can then be sold on, to either individual or groups of investors, depending on whether a transaction is syndicated or bilateral in nature.
In the case of the Beazley cyber cat bond, we’re told a number of investors have taken part, while many more ILS investors saw the deal during its development and marketing, so this was a quite broadly syndicated arrangement.
That’s positive for the ILS market, as the more investors and ILS fund managers that see these first deals for new classes of insurance business, the better, as it broadens the education of what can be possible.
Another key piece of information about Beazley’s first cyber cat bond that we’ve learned today, from a number of sources, is that the risk model used was one from specialist firm CyberCube.
It’s positive that a third-party risk model was the one used, as for full 144A cyber catastrophe bonds to be successfully issued in future there will need to be a range of third-party cyber risk models available, for sponsors and investors to choose from and use.
As the ILS and catastrophe bond market expand their reach and scope in this way, having access to robust third-party service providers, for structures, models and other tools, is critical.
Where cyber cat bonds and ILS are concerned, the work to transfer cyber risks into the capital markets, in cat bond and ILS form, has been ongoing for years.
This means that a lot of investment has been made and preparation undertaken, while there are already service providers with established ideas as to how this can work, as well as specialists in cyber risk like CyberCube that can provide the risk modelling required.
All of this aligns to provide the necessary market mechanisms to model, structure, place, and issue the first cyber catastrophe bond.
This first successful deal for Beazley will provide valuable learnings, while also helping to build ILS investor confidence in cyber risk and cyber reinsurance, as a growing component of the ILS asset class.