Cumulus Re: A Catastrophe Bond for Cloud Outages
Parametrix, a provider of cloud monitoring, modelling and insurance services, has joined forces with Hannover Re, a global leader in reinsurance, to introduce Cumulus Re, a new catastrophe bond designed to mitigate losses stemming from cloud outages.
This financial instrument is the first of its kind, offering coverage against the risk of sustained disruptions in cloud services. Cumulus Re serves as a protective measure for Hannover Re, protecting the reinsurer from potential losses resulting from cloud outage accumulation within its extensive cyber reinsurance portfolio. Parametrix assumes the role of modelling and calculation agent for the annual bonds, ensuring accurate assessment and management of the associated risk.
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 if the delivery of specific cloud services in certain US cloud regions by one or more named cloud service providers is interrupted for more than a specified waiting period.
A privately issued, parametric "cat bond lite" under Reg 4(a)(2) has attracted significant attention from investors and says the placement of bonds has addressed the increasing need for reinsurance coverage.
The transaction, facilitated by Parametrix, benefits from portfolio risk modelling and continuous cloud performance monitoring. Parametrix's pioneering efforts include the development of a groundbreaking cloud model, leveraging historical outage data collected through the Parametrix Cloud Monitoring System (PCMS).
With its robust data analytics, advanced models, and proprietary technology, Parametrix is well-positioned to support the market in effectively assessing and understanding cloud risk. This initiative enhances transparency and provides clearer insights into systemic cloud risk management.
“Businesses are increasingly reliant on cloud services for storage and computing power, which has driven exposure to cloud outage,” says Henning Ludolphs, Managing Director 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 adds: “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, concludes: “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.
“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.”
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