Investors willing to back cyber cat bonds as sponsors consider renewals

The role of the insurance-linked securities (ILS) market in upcoming cyber renewals remains unclear, with some existing cat bonds set to mature while traditional reinsurance capacity abounds.

The first cyber cat bonds in the public 144A market came near the end of 2023, with issuances from Axis Capital, Beazley, Swiss Re and Chubb. Some deals followed in 2024, but there has since been a period of relative quiet in cyber ILS, with the only public cat bond in 2025 so far a renewal of Hannover Re’s 2024 cloud outage bond.

Lockton Re’s cyber practice leader Oliver Brew and Howden Re executive director Toby Lampier cited pricing competition from the traditional reinsurance market as a factor behind the absence of new cyber cat bonds when speaking to Cyber Risk Insurer in July.

“It will be interesting to see what happens when the major deals that have been done are up for renewal at the end of this year,” Lampier said at the time.

Speaking to Cyber Risk Insurer at the Monte Carlo Rendez-Vous, Brew said: “Some of the major players who have been in the market previously, notably Beazley, Chubb and Axis, who all have public 144As, are in the time of the cycle when clearly they need to think about what’s next.”

HOW MUCH CAT BOND COVERAGE WILL EXISTING SPONSORS RENEW?

Brew said softening in the traditional reinsurance market was creating “a higher barrier to jump into the cat bond market”. He said issuers, of which there are only “a handful”, are cautious.

“At the moment, there is more than enough capacity in the rated or the unrated environment,” said Daniel Carr, head of cyber at Ariel Re. “The question ultimately will come down to scale and efficiency of purchasing.”

Aon Securities CEO Richard Pennay attributed the lack of recent cyber ILS activity to changes in demand for cyber reinsurance. “Insurance companies’ growth strategies just aren’t quite where they were a few years ago, and that’s reduced the demand to quickly go out and find more capacity to really supplement that growth.”

Swiss Re recently cut its forecast for growth in cyber insurance premium volume, saying “the ambitious exponential growth forecasts frequently circulated in the industry are unlikely to materialise”.

However, Pennay said he expected to see cyber cat bond issuance in the fourth quarter of 2025. “We will be active in cyber cat bonds in the fourth quarter and we continue to maintain that there will be growth in that market as we move forward,” he said.

Pennay described cyber cat bonds as a “core purchase” for some of the carriers that have already used them. “What we’ve demonstrated is some of the largest cyber writers in the world value the non-proportional systemic-type cover that the cat bond is providing.”

“I don’t think we’ll see a huge flurry of deals for 1.1,” said Philipp Kusche, global co-head of ILS and Europe chairman for Howden Capital Markets & Advisory. “There are obviously some renewals,” he added, but the list of cedants with the resources and sufficiently large cyber portfolios for a cat bond is “just not that long, and it doesn’t go much beyond the people who have already done the deal”.

CYBER CAT BOND PRICING SET TO BECOME MORE COMPETITIVE

Meanwhile, investors “continue to have strong demand” for cyber cat bonds, Pennay said. “Spreads have tightened in the cat bond market in general, and we would anticipate that execution of cyber in the fourth quarter will be relatively efficient compared to that recent spate of deals at the end of 2023.”

Brew said: “Where let’s say six to 12 months ago there was a dozen to 15 investors, there’s now a longer queue of investors lining up who are looking at the participation so far and, frankly, want a piece of the action.”

He predicted a “steady walk back” of premiums in cyber cat bonds.

Alex Podmore, senior cyber broker at Aon, also said he expected the cost-effectiveness of cat bond protection to improve for cedants. “That’s a function of investor understanding and investor comfort in the product itself,” he continued, as well as recent changes to vendor models.

Podmore said of the model changes: “The high-level message is that, directionally, the numbers are coming down, not necessarily for all portfolios, but on balance everything is trending in a downward direction versus prior versions of the model on a default basis.”