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Wind (including hurricanes) and earthquakes have long been the “peak perils” that keep insurance executives up at night and dominate the $54 billion market for cat (catastrophe) bonds to backstop insurance and resinsurance companies. But now cyber cat bonds are moving up in demand, in part because cyber risk is (in general) uncorrelated with natural disasters, offering diversification for investors, reports investment manager the Man Group. We’ve been tracking the same trend of insurers using cyber catastrophe bonds to provide additional risk capacity.
Will Cyber Become the “Third Peak Peril” For Insurers?
“(W)e believe cyber has the potential to become the third peak peril over time, ” the Man Group reports in its useful analysis of cyber cat bonds. The report lays out several reasons for Man’s bullish take on cyber cat bonds. They’re perhaps best summed up by the chart below, which shows that returns of public cyber bonds have outperformed those for natural disasters.
Rapid Growth of Cybersecurity Insurance Premiums to Propel Cyber Cat Bonds
Cyber insurance premiums have been growing at over 20% a year, jumping from $3.9 billion in 2017 to $15.3 billion in 2024, according to the report. And this growth is not slowing — experts predict premiums more than double by 2030. As insurers take on more of this risk, they’re looking for new ways to protect themselves, and cat bonds are a natural fit.
Also worth noting in the report is the discussion of different cyber risk models and indices, which are now starting to include “nonmalicious” cyber events (which we assume would include the disastrous Crowdstrike outage last year).
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