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Cyber ILS deal 'will be done in 2023': Aon's Schultz

Aon Securities chief executive says there are a number of challenges in transferring cyber risk into the alternative capital space, but adds a deal will be done in 2023

But demand for primary cyber insurance needs to increase for the cyber ILS market to take off, according to Aon Securities chief executive

Aon will place a cyber risk-transfer deal into the capital market next year, the head of its investment banking division said.

Speaking at the Monte Carlo Rendez-Vous, Paul Schultz, chief executive of Aon Securities, said there were a number of challenges in transferring cyber risk into the alternative capital space, but he insisted a deal would be done in 2023.

“I’ve probably lost a bet with somebody sitting in the front rows here about when the cyber deal will get done, but I’ll go on record and say we’ll get a cyber deal done in 2023,” Schultz said.

He added Aon Securities had spent a lot of time working with fund managers to educate them about cyber risk and there were now “probably 12 to 16 managers today who will write cyber in some fashion”.

But Schultz said at the moment the demand for cyber cover was not enough to facilitate its move into the insurance-linked securities (ILS) sector.

“Right now the experience in the market is the demand to buy cyber cover isn’t exceeding the supply of capital that’s available to provide it,” he said.

“Part of that is because there isn’t the same sort of shareholder, regulatory or rating agency pressure to buy cyber,” Shultz continued. “We’re not seeing the underlying demand leading to more [primary] cyber insurance getting done, which [would lead] to more reinsurance cyber getting done, which then ultimately leads to the ILS stuff.”

Speaking at the same session, Michael Millette, co-founder and managing partner at Hudson Structured Capital Management, said the sector needed to think more carefully about the accumulation risks involved in cyber.

“Part of the reason for that is state actors go both ways and we’ve seen that this year,” Millette said. “Cyber risk is in some ways more like outage risk than it is like cat risk. If any individual company is hacked, that is a problem for them and they have to figure out how to recover. If everyone is hacked, that is a problem for society and government will intervene.”

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