HSCM and Aon team up to offer cyber coverage
Bermudian-based reinsurance investor Hudson Structured Capital Management has teamed up with global broker and risk adviser Aon to create a new cyber catastrophe insurance product.
The product, which allows for limits of up to $70 million, is intended to protect insurers and reinsurers against systemic and catastrophic cyber events.
Aon and HSCM said they 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 move continues a busy month for HSCM, which last week acquired a majority stake in distressed, Florida-based insurer Southern Fidelity Insurance.
Cyber insurance was an approximately $6 billion market last year and is expected to grow to $20 billion by 2025, according to Aon. An increase in cyberattacks and growing awareness among business leaders of the financial and reputational damage data breaches can cause, is driving demand.
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.
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 [insurance-linked securities] 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.”
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. 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.”
HSCM’s capital injection into Southern Fidelity came shortly after SFIC and its parent company Capitol Preferred Insurance Co, two Florida homeowners’ insurance providers, merged their business operations.
A joint statement from the two companies, said HSCM Bermuda will receive a majority ownership stake for its investment and will take an active role in maintaining and expanding SFIC’s footprint in the Florida, Louisiana, Mississippi and South Carolina homeowners’ insurance markets.
Mr von Herberstein said: “2020 has been a challenging year for the southeast homeowners’ insurers. As rates and the underwriting environment begin to improve, we are excited to support Southern Fidelity as they rebuild.”
James Graganella, chief executive officer of SFIC, said the alliance would strengthen the insurer’s position in the marketplace.
HSCM Bermuda, founded four years ago, is an asset manager focused on investments in the re/insurance and transportation sectors. As of November 1, it had more than $2.75 billion in capital commitments and assets under management.