Aon secures $70m HSCM-led alternative capital capacity for systemic cyber risk

Broker Aon has launched a new product with alternative capital capacity led by Hudson Structured Capital Management (HSCM Bermuda) to protect insurers and reinsurers against systemic and catastrophic cyber events.

The two companies have already closed the first transaction, a retrocession contract on behalf of an undisclosed cedent.

The cover allows for limits of up to $70 million and will protect against increasing cyber loss aggregations on re/insurers’ balance sheets.

The product is structured to protect the cedent from the effects of catastrophic cyber market losses stemming from events such as self-propagating malware or wiperware, distributed denial of service, a significant cloud outage or certificate revocation.

According to Aon's market analysis, C–suite awareness, reputational risk and regulation – in addition to an increase in cyber attacks – are driving rapid growth in the cyber insurance market, with premiums expected to rise from $6 billion in 2019 to $20 billion by 2025.

Aon said insurers play a critical role in providing cover for businesses to protect their assets from cyber risk but the supply of traditional reinsurance cover is being challenged by demand.

The new product will enable re/insurers to rethink access to capital with a new source of capacity and protection from the capital markets.

Luke Foord-Kelcey, international head of cyber at Aon’s Reinsurance Solutions, said: “In addition to increased claims activity in the cyber market, the current global crisis has emphasised the need for re/insurers to protect for systemic events. We are enabling carriers to navigate new forms of volatility by expanding the cyber reinsurance and retro markets to address this risk’s inherent systemic exposures."

“Our methodology allows us to develop event definitions that achieve clarity and confidence for all parties," Foord-Kelcey added. "Combined with the multi-model approach from Aon’s dedicated cyber analytics team, this has enabled us to develop a platform with HSCM that allows capital markets to participate in the fast-growing cyber sector in a manner that works for both cedents and investors and, importantly, that enables investors to fund limits previously unseen in this space.”

Edouard von Herberstein, partner and chief underwriting officer of HSCM Bermuda, said: “We are excited to help cedents transfer their cyber risk through this innovative and ILS-friendly structure with Aon. This is a great example of insurance and ILS markets offering risk transfer solutions for intangible assets, an area of the market where we expect to see a growing number of opportunities in the years to come.”