Large European reinsurer Hannover Re has, in collaboration with Parametrix, issued the world’s first cloud outage catastrophe bond, a $13.75 million privately placed transaction called Cumulus Re.
Issued via Hannover Re’s wholly owned Bermuda domiciled subsidiary, Kaith Re Ltd., the parametric cat bonds provide the reinsurer with incremental retrocession coverage against cloud outage loss accumulation within its growing cyber reinsurance book.
Expanding on this, the two companies explain that the cat bonds provide Hannover Re with retro protection in the event that the delivery of specific cloud services in certain U.S. cloud regions by at least one named service provider are interrupted in excess of a specified waiting period.
Cumulus Re was placed with a number of investors and has been launched to meet rising demand for this type of reinsurance coverage.
Parametrix’s portfolio risk management and ongoing cloud performance monitoring enabled this innovative transaction. The company specialises in cloud monitoring, modelling, and providing insurance services, and created the first-of-its-kind cloud model based on historical cloud outage data which was collected by the Parametrix Cloud Monitoring System.
For this transaction, Parametrix acts as both modelling and calculation agent on the annual Cumulus Re bonds.
Henning Ludolphs, Managing Director, Retrocession and Capital Markets at Hannover Re, commented: “Businesses are increasingly reliant on cloud services for storage and computing power, which has driven exposure to cloud outage.
“Cloud outage can lead to significant business interruption losses for the insured, and subsequently for the (re)insurance market. Therefore, we are very pleased to have arranged a parametric cloud outage cover in bond format in cooperation with Parametrix. Cloud outage is one of the main risks within cyber (re)insurance and the involvement of capital markets is crucial to satisfy capacity needs in the mid- to long-term. This cover is a first step towards getting investors involved, and we envisage to grow the cover over time together with our investors.”
“To ensure the stability and sustainability of the fast-growing cyber insurance market, it is important to manage systemic risk effectively, which demands large capital resources. This is essential for both (re)insurers and investors as Cloud Outage is a major concern and therefore constitutes the primary coverage trigger,” said Sharon Haran, Parametrix Chief Commercial Officer.
Jonathan Hatzor, Parametrix Co-Founder and CEO, added: “The confidence Hannover Re and the investors have placed in us to provide the data analysis and modeling for this bond is a great endorsement of the technology we’ve developed at Parametrix to collect, analyze, and monitor data on cloud performance. It is a critical business risk in the new age of the digital supply-chain and we are working hard to expand our services to support all businesses, particularly those in the risk transfer arena, to manage this serious new risk to commerce.
“Modeling this transaction was one of the first projects of our newly launched Parametrix Analytics, a stand-alone risk consultancy that provides comprehensive outage loss modeling for the cyber insurance sector. I’m proud of our team and efforts and committed to supporting the sustainable growth of the cyber insurance market by using our expertise and resources.”
