Parametrix and Hannover Re cooperate to structure and place Cumulus Re, a $13.75m first-of-its-kind cyber risk catastrophe bond.

Hannover Re and Parametrix have launched and issued Cumulus Re, the first-ever catastrophe bond to cover losses arising from sustained cloud outage risk.

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Cumulus Re cat bonds with a value of $13.75m have been issued by Hannover Re’s Bermuda-based Kaith Re insurance linked securities (ILS) subsidiary.

The ILS protect the reinsurer against cloud outage loss accumulation within its large cyber reinsurance portfolio.

Cloud-focused monitoring and modelling insurtech Parametrix acted as modelling and calculation agent on the annual bonds.

The issue provides Hannover Re with incremental retrocession protection in the event that the delivery of specific cloud services in certain US cloud regions by one or more named cloud service providers are interrupted in excess of a specified waiting period.

The privately issued, parametric, Reg 4(a)(2) “cat bond lite” has been placed with multiple investors, and begins to meet the rapidly growing demand for this type of reinsurance coverage.

“Businesses are increasingly reliant on cloud services for storage and computing power, which has driven exposure to cloud outage” said Henning Ludolphs, managing director, retrocession and capital markets, Hannover Re.

“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,” he continued.

“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,” Ludolphs said.

Portfolio risk modelling and ongoing cloud performance monitoring by Parametrix have enabled the transaction.

Parametrix created a first-of-its-kind cloud model based on historical cloud outage data, collected by the Parametrix Cloud Monitoring System.

The insurtech said is focused on working with re/insurers to manage and analyse cloud risk, enhancing transparency and clarity regarding cloud systemic risk.

Sharon Haran, chief commercial officer, Parametrix, said: “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.”

Jonathan Hatzor, Parametrix co-founder and CEO said: “The confidence Hannover Re and the investors have placed in us to provide the data analysis and modelling for this bond is a great endorsement of the technology we’ve developed at Parametrix to collect, analyse, 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,” he said.

“Modelling this transaction was one of the first projects of our newly launched Parametrix Analytics, a stand-alone risk consultancy that provides comprehensive outage loss modelling 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,” Hatzor added.