The two companies claim their reinsurance arrangement will get most of its capacity from the capital markets through investment vehicles
Specialist insurance firm Beazley has struck a new agreement with catastrophe reinsurance firm RenaissanceRe to back its cyber catastrophe coverage.
According to the two firms, the deal will involve most of the capacity coming from the capital markets through investment vehicles such as Insurance-Linked Securities (ILS).
Risk transfer already occurs in the market through cyber insurance catastrophe bonds — a type of ILS — but Beazley and RenaissanceRe claimed their arrangement was one of the first of its kind.
Beazley chief underwriting officer Adrian Cox said: “As the scale of the cyber threat to businesses continues to intensify, the challenge to the insurance industry is to ensure we continue to provide cover that responds as the risk evolves and capacity that is commensurate to the size of the risk.
“We are delighted to partner with RenaissanceRe to deliver valued cyber cover to our growing client base whilst managing accumulations of risk within the group’s tolerances.”
Additional capacity will allow Beazley to provide higher coverage limits
Beazley hopes additional capacity from the capital markets will elevate its position in the cyber insurance sector by letting it offer higher coverage limits — the maximum amount a provider is willing to pay for a single incident or claim.
RenaissanceRe chief casualty and specialty underwriting officer David Marra added: “We are pleased to partner with Beazley to provide a solution to businesses seeking higher levels of cyber insurance cover.
“Our ability to address the emerging challenges of the market by structuring attractive opportunities for investors is a hallmark of RenaissanceRe’s creative approach to risk selection, capital management and client service.”
Parts of the market are reluctant to take on cyber risk
Cyber insurance is a relatively new product in terms of the wider insurance industry, and many within it have been reluctant to embrace the new risk category for a variety of reasons.
Much of the hesitation has to do with the existence of “black swan” events, the name given to an unpredictable occurrence that causes loss on a large scale.
The 2017 WannaCry and NetPetya attacks were examples, and the Geneva Centre for Security Policy branded the latter “the most expensive malicious cyber incident on record”.
Pharmaceutical giant Merck was hit with one of the highest costs after the attack, with its final losses claimed over several insurance policies totalling $1.3bn — including repairs to its IT infrastructure and business interruption costs accumulated in the time it couldn’t trade.
Another complication in the world of cyber coverage is that several providers have refused to pay out on large claims due to a policy exclusion for events that fall under an act of war by a government or sovereign power.
In the case of NotPetya, many insurers fell back on this exclusion to deny claims based on the reasoning that much of the international community attributed the attack to Russia.
Investment mogul Warren Buffet — who built a large chunk of his fortune from buying up insurance companies such as Geico and National Indemnity — said in 2018 that anybody claiming to have a firm grasp on cyber risk was “kidding themselves”.
Beazley’s arrangement with RenaissanceRe shows that some players in the market are still keen on growing their role in the cyber insurance sector, so long as they can allocate a chunk of the risk to the capital markets.