The buzz around cyber insurance-linked securities (ILS) is gaining speed. At the beginning of the year, Beazley spearheaded a $45 million private cyber cat bond, closely followed by Hannover Re, which completed a $100 million cyber quota share cat bond. Now, there are rumours that a significant first 144a cyber catastrophe bond issuance is around the corner.

Juan Marcano, alternative risk transfer principal at CyberCube, while unable to speculate, agrees about the growing interest in this space. Speaking to SIRC Today, he said: “There has been an increase in activity in the ILS cyber sector over the last year as investors have greater confidence in cyber as an asset class. This has been demonstrated by the announcement of private transactions earlier this year.

“There is momentum building behind supporting a public issuance,” he added. “We would therefore hope for some encouraging developments in the next couple of months.”

While there’s chatter about a capacity shortage in some parts of the industry, Marcano doesn’t believe that’s the case in cyber. “There is no crunch of capacity in the cyber market,” he asserted.

He is confident that cyber is “the fastest-growing segment in the industry”, and while primary carriers now see it as a standalone line, akin to property and casualty, there’s vast growth potential.

“Cyber still has significant space to grow. And we’re very keen on helping the industry understand and give them the tools to quantify that risk,” he said.

On a global scale, the uptake of cyber insurance lags compared to traditional insurance products. While the US and Europe have been quicker to adopt, the Asia-Pacific region remains cautious—but not for a want of interest.

“The situation in the region is very interesting. You cannot take Asia-Pacific and paint it with just one brush.” Marcano explained there are nuanced intricacies of distinct regulations and product understanding. He pointed out that countries such as Japan, Australia, Korea, and Singapore are leading the pack in the region, yet the sector remains in its infancy even there.

Time for innovation

Despite its early stage, the sector is ripe for innovation, Marcano believes, especially in underwriting. Insurtech firms are simplifying the traditional, often tedious cyber insurance underwriting process. In Asia, Marcano noted, local entities are facilitating cyber insurance access.

Yet, growth has its hurdles. While Marcano refrains from deeming the current situation a “capacity crunch”, he recognises that to truly realise the market’s potential, “extra capacity will be needed”.

Brokers, Marcano believes, can be the catalysts. “They’ve been pivotal in helping asset managers grasp the nature of the cyber asset class,” a crucial step for thriving in the sector.

The past 18 months have brought clarity to defining cyber as a peril, he observed. “Cyber isn’t an umbrella term—there are distinct wordings that separate the various risks within that domain.”

Claim numbers are on the rise, especially on the lower end, but Marcano doesn’t see this as an inhibitor. “Innovation is relentless. This is what makes cyber ILS captivating,” he remarked.