Bridging the gap: the emergence and growth of cyber cat bonds

As the global cyber insurance industry expands, the need for additional capacity alongside global reinsurance capacity has been growing, and the ILS market is starting to play an important role in broadening the capital base.

Towards the end of 2024, we saw the placement of the first 144A cyber cat bonds, with $415mn issued across four different cedants. Since then, cyber cat bond investment has continued to advance, with more than $780mn in 144A cyber cat bonds now in place. The most recent successful transaction, PoleStar Re 2024-3, was the largest ever cat bond covering cyber risks, providing Beazley with $210mn of protection against major systemic cyber events on a per occurrence basis, with Moody’s RMS acting as the modelling agent.

Cyber cat bonds are receiving broadening investor support, and investors are increasingly willing to support cyber reinsurance needs by providing meaningful catastrophe-based cyber protection. This growth has been supported by the biggest enablement effort yet for a new peril by the ILS market, focused on increasing understanding of how cyber exposure is written and managed, and how systemic cyber events might unfold in future.

Cyber is different to the traditional natural catastrophe perils which ILS investors are familiar with. There is no catalogue of historical catastrophe events to draw upon. Nor does cyber have a key geographical component to help visualise it: systemic events can have global impacts, as evidenced by the recent CrowdStrike incident.

Over the last decade, Moody’s has heavily invested in and significantly advanced its understanding of cyber risks, with an established, comprehensive probabilistic modelling framework drawing on more than 30 years of providing industry-leading catastrophe models. Moody’s RMS models are heavily used by the market, notably in reinsurance and capital allocation.

Moody’s has played an active role in transparently educating investors about their approach to modelling cyber risks. And Moody’s has now provided modelling agent services for over 60 percent of the total 144A cyber cat bond market size, reflecting the confidence in Moody’s RMS models. With the continued expansion of the cyber insurance industry and cyber only comprising a small fraction of the total cat bond market, there is significant room for further growth in the cyber cat bond space.