Beazley saw summer opportunity to bulk up on cyber ILW’s and cat bonds: CEO Cox

With Beazley reporting nine-month results today, CEO Adrian Cox explained during an analyst call that the company saw an opportunity this summer to bulk-up its cyber protection through industry-loss warranty (ILW) arrangements and PoleStar Re catastrophe bonds.

Beazley has been prudently growing its cyber underwriting business alongside increased purchases of cyber reinsurance to protect it against large or systemic events.

This morning Cox highlighted a higher spend on cyber reinsurance, putting it down to the recent purchases of new cyber ILW protection and its latest and largest PoleStar Re cyber cat bond that Beazley has sponsored to-date.

In September, we were first to report on Beazley’s third and largest 144A cyber catastrophe bond, the $210 million PoleStar Re Ltd. (Series 2024-3) issuance.

It was already known at that time that Beazley had been looking to add more cyber reinsurance protection through the industry-loss warranty (ILW) market this year as well.

In October, Beazley’s senior team then revealed that it successfully secured a $290 million cyber industry loss warranty (ILW), to provide the firm even more tail-risk cover for catastrophic cyber loss events.

Beazley now has a $1 billion cyber reinsurance tower, with $200 million of traditional cover at the bottom, above which sits the $510 million of outstanding PoleStar Re catastrophe bonds and the $290 million cyber ILW.

Which means the capital markets are playing a significant role in Beazley’s $1 billion of cyber reinsurance, something CEO Adrian Cox discussed today during the analyst call.

The Beazley CEO commented, “Where are we at the end of nine months, while gross and net growth are both 7% the reason for that is we’ve spent significantly more on reinsurance than originally planned.

“We spotted in the summer an opportunity to increase significantly the amount of cyber catastrophe bonds and ILW’s that we purchase.

“As we’ve been saying for a while, we’re actively encouraging the development of this catastrophe market in order to be able to hedge at-scale, our cyber systemic risk.

“This is in line with our strategy. We see the ability to use cat bonds and ILW’s as part of the toolkit we need for that systemic exposure.”

Later in the call, Cox provided some insights into how Beazley thinks about the additional capital benefit it receives through these cyber risk transfer deals.

“As we think about cyber, the main reason for us buying the increased reinsurance was because we could, and we’re trying to encourage growth in that catastrophe market and bring different pools of capital into the cyber reinsurance busines,” Cox explained.

Continuing, “It does give us more optionality going forward, both in terms of how we hedge our cyber business and therefore how fast we want to be able to grow our cyber business and it does give us a little bit more capital flexibility. We haven’t done it, though, for the capital flexibility in and of itself, so that will not impact particularly how we think about excess capital or use of capital. But it does give us more options in terms of how we manage our business mix and how we manage the cyber opportunities.

“So it wasn’t really done for capital purposes. It was done for more strategic reasons, although there are some capital benefits to it.”