Parametrix has partnered with Hannover Re to issue the first ever catastrophe bond specifically created to cover losses arising from sustained cloud outage risk. Cumulus Re protects the reinsurer against cloud outage loss accumulation within its large cyber reinsurance portfolio. Parametrix acts as modelling and calculation agent on the annual bonds.

Cumulus Re cat bonds with a value of US$13.75m have been issued by Hannover Re’s wholly owned Bermuda-based Kaith Re Ltd. 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 to meet the rapidly growing demand for this type of reinsurance coverage.

Portfolio risk modelling and ongoing cloud performance monitoring by Parametrix have enabled the transaction. Parametrix created the first-of-its-kind cloud model based on historical cloud outage data, collected by the Parametrix Cloud Monitoring System.

“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 at 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. 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.”

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

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