In a significant advancement for the reinsurance sector, Lockton Re, a prominent reinsurance broker, has achieved a milestone by executing what it identifies as the first-ever Industry-Loss Warranty (ILW) that fuses property catastrophe and cyber risk triggers within a unified limit structure for a client seeking protection.
This innovative arrangement employs triggers from PERILS AG, in collaboration with CyberAcuView for the cyber risk index, while Verisk's PCS supplies the industry index for the property catastrophe exposure. Lockton Re highlighted that this demonstrates the continued evolution of the ILW market beyond its traditional property-focused applications, further emphasizing the growing sophistication of cyber ILW and industry-loss index trigger frameworks. The design of this ILW placement specifically addresses the intrinsic needs of global cedents aiming for effective de-risking strategies, particularly concerning their expanding exposure to cyber threats in the United States.
Multi-peril coverage within a single limit, utilizing industry-loss triggers, has seen increasing adoption in the catastrophe bond market. Now, the ILW market is progressing in a similar vein, bringing together catastrophe and specialty lines in single hedging transactions like this one. Tom Parcell, Chief Broking Officer for Lockton Re in Bermuda, commented on the deal, stating that it underscores Lockton Re's commitment to innovation in support of its clients and expands the array of products available in the market. He noted a broader client demand for risk solutions that feature novel structures and integrated options, expressing particular enthusiasm for the growth potential in bespoke, alternative index covers.
Theo Norris, International ILS and Cyber ILS Leader at Lockton Re Capital Markets, further remarked on the significance of this deal, pointing to trends in the convergence of property catastrophe and cyber risk transfer, the increasing maturity of industry cyber loss indices, and the development of new capital solutions. He added that Lockton Re Capital Markets is also advancing with Catastrophe Bonds that encompass property and other business lines, including cyber, across multiple tranches, attributing their rapid adaptability and client-centric team approach to their internal structure. Lockton Re anticipates further developments in hybrid ILW structures designed to meet client needs, expecting more hybrid collateralized reinsurance and catastrophe bond structures as cyber industry loss reporting continues to progress. While the specific capital providers for this dual-peril, single-limit ILW were not named, such instruments are likely to attract insurance-linked securities funds and ILS investment managers.
This pioneering achievement by Lockton Re underscores a forward-thinking approach within the reinsurance industry, demonstrating how innovative financial instruments can be developed to address complex and evolving risk landscapes. By integrating property catastrophe and cyber risks into a single, comprehensive solution, the firm not only provides enhanced protection for its clients but also sets a new benchmark for risk transfer mechanisms. This initiative reflects a growing recognition of interconnected risks and the necessity for integrated solutions that offer efficiency and broad coverage. Such advancements are crucial for fostering market resilience and stability, ensuring that global economies are better equipped to manage both natural disasters and emerging digital threats.
