CyberCube’s recent study on cyber catastrophe bonds sheds light on the diversification opportunities within this evolving asset class. The firm’s analysis is of four 144A cyber catastrophe bonds issued in the fourth quarter of 2023. This brought in $415 million of new capital, which is detailed in their white paper, “Digital Ties and Natural Divides: Correlation and Diversification in Cyber Catastrophe Bonds.” This research challenges the common investor belief regarding the high correlation risk among these bonds.
By running 50,000 simulation years with its probabilistic cyber catastrophe model, Portfolio Manager, CyberCube, provides a nuanced view of systemic cyber events’ potential impacts. This effort marks CyberCube as the sole modeling agency to have worked with all the sponsors of 144A cyber catastrophe bonds. That offers a unique insight into the risk profiles of these instruments.
“Debunk The Myth”
Brittany Baker, Head of Solution Consulting at CyberCube, stated, “Our research aims to debunk the myth that cyber catastrophe bonds cannot offer diversification benefits.” She continued, “We believe that our in-depth analysis provides investors with a clearer understanding of the risks and rewards associated with this asset class.”
Jonathan Choi, Director of Insurance Risk Consulting at CyberCube, drew parallels between the cyber catastrophe bond market’s current state and the early days of the natural catastrophe bond market. “Just as the natural catastrophe bond market evolved to address specific perils, we anticipate a similar trajectory for cyber catastrophe bonds. This will likely lead to more sophisticated approaches to cyber risk management,” Choi explained.
The white paper concludes that the issued 144A bonds lay a strong foundation for future innovation in the cyber Insurance-Linked Securities (ILS) market. It also Highlights the potential for risk diversification that could reassure investors looking into this new asset class.
Source: CyberCube Analysis of 144A Cyber Catastrophe Bonds Demonstrates Potential for Risk Diversification.
Other News: 2023 Could See First Cyber “144a Cat Bond:” CyberCube (Opens in a new browser tab)