Bermuda's insurance-linked securities market is setting its sights on cyber risk as the next frontier for growth, with market participants arguing the asset class can attract a wider pool of institutional capital to the island's reinsurance hub.

Cyber insurance-linked securities, which transfer cyber catastrophe risk to capital market investors, remain a relatively young segment compared with the well-established natural catastrophe bond market. However, proponents based in Bermuda say the structure offers institutional investors diversification benefits, since cyber losses are largely uncorrelated with hurricanes, earthquakes and other natural perils that dominate traditional ILS portfolios.

Industry figures say the goal is not simply to carve up existing capacity but to 'expand the pie' by drawing in pension funds, endowments and asset managers that have so far stayed on the sidelines. Growing global demand for cyber cover, driven by rising ransomware attacks and increasing regulatory scrutiny of data protection, has created a protection gap that capital markets are well placed to help fill.

Bermuda is seen as a natural home for the sector's development. The island already hosts the majority of global catastrophe bond listings and benefits from a regulatory regime under the Bermuda Monetary Authority that is familiar to both sponsors and investors. Market watchers note that recent cyber catastrophe bond issuances have demonstrated appetite for the risk, though challenges remain around modelling, data quality and defining trigger events.

Analysts caution that standardisation and better historical loss data will be needed before cyber ILS can achieve the scale of the natural catastrophe market. Even so, they say Bermuda's combination of reinsurance expertise, capital markets infrastructure and supportive regulation positions the island to capture a significant share of the sector's anticipated expansion in the coming years.