The recent issuance of a cyber catastrophe bond by Axis Capital Holdings Ltd. capped a year in which the insurance-linked securities market showed increased interest in providing cyber-related reinsurance coverage.

Market participants expect further growth in 2024, potentially expanding capacity for systemic cyber exposures.

Axis issued a Series 144A cyber catastrophe bond late last month to provide several of its subsidiaries with $75 million of fully collateralized indemnity reinsurance protection for systemic cyber events on a per-occurrence basis. Long Walk Reinsurance Ltd., a Bermuda-registered special purpose vehicle, issued $75 million of Series 2024-1 Class A notes, maturing in January 2026.

The issuance followed other cyber-related ILS capital markets transactions earlier in the year.

In January, Beazley PLC secured $45 million of indemnity against all perils in excess of a $300 million catastrophic cyber event through a cat bond. The coverage was later expanded to $81.5 million.

Also in January, Hannover Reinsurance SE bought $100 million in retrocessional reinsurance coverage for cyber exposures through a proportional reinsurance treaty with a capital markets provider, tapping the markets without the use of securities.

In addition to securing coverage for the companies, the initial transactions may also mark the beginning of a wider cyber ILS market, said Paul Bantick, London-based global head of cyber and technology for Beazley PLC.

“We always hoped that this isn’t just about Beazley, that by doing that $81 million it would trigger the start of everyone being able to get access to this third-party capital, because for the cyber market to scale, that needed to start to happen,” he said.

Axis also sees further promise in the nascent market.

“With the launch of Long Walk, we hope that this can be a template for the market to use in building alternative capital sources in the future,” said Kyle Freeman, Boston-based head of ILS structuring, property, for Axis.

The capital markets will be a key component for future growth of cyber coverages, he said.

“With the cyber market growing, there is certainly a demand for more capacity. Given the catastrophe-like component to cyber risk, alternative capital is needed to sustain the growth of this market,” Mr. Freeman said. “We expect Long Walk to be the first of many indemnity 144A cyber cat bonds in the market and to be a catalyst for the development of other solutions that will support the growth of the cyber market, such as index cat bonds and traditional reinsurance coverage.”

Other parties involved in the deal are also optimistic about the prospects of a wider acceptance of cyber cat bonds.

“We have seen the birth of the cat bond market in 2023 for cyber insurance and reinsurance. It’s really the meeting of supply and demand,” said Richard Pennay, New York-based CEO of insurance-linked securities at Aon Securities, a unit of Aon PLC, which structured the Axis deal and distributed securities to investors.

Advances in risk analyses by modeling companies and educational efforts among cedents, brokers and investors helped usher in cyber catastrophe bonds, experts say.

“Advances in modeling certainly played a part, but also the concerted effort of cedants, brokers and modeling agents in helping asset managers and investors get comfortable with the new asset class. The coordination of efforts made a difference,” said Juan Marcano, London-based principal, alternative risk capital, at CyberCube Analytics Inc., which provided risk analysis for the Axis bond.

Overall catastrophe bond issuance is expected to set a new record in 2023 after first-half issuance of just under $10 billion, which was already the fourth-highest yearly total after just six months. Most catastrophe bonds cover perils such as U.S wind and earthquake, making cyber a new extension for the market.