Hannover Re sponsors $13.75m Cumulus Re cloud outage catastrophe bond

Hannover Re parametric cloud outage cyber catastrophe bond

Global reinsurance firm Hannover Re has successfully sponsored a $13.75 million Cumulus Re (Series 2024-1) parametric cloud outage catastrophe bond that was privately issued and placed using the firm’s Kaith Re Ltd. vehicle, with modelling of the cyber risks undertaken by Parametrix.

Hannover Re has been looking at a parametric cloud outage retrocession transaction for a while, eyeing the insurance-linked securities (ILS) market as a source of capacity for this cyber risk transfer deal.

Back in early 2023 we reported that managing general agent and Lloyd’s coverholder Parametrix, a specialist in cloud downtime insurance protection structured on a parametric basis, had been working with Hannover Re.

Hannover Re executives told Artemis a month later, in March 2023, that the company was anticipating tapping the ILS market for cyber retro with its first cyber cat bond before too much longer.

Now, the awaited transaction has been placed, with Hannover Re using its private cat bond, or cat bond lite, issuance facilities to access capital market investors to support this transfer of cloud outage risk on a parametric basis.

Cumulus Re is the first-ever catastrophe bond to cover losses that arise from a sustained cloud outage.

With cloud computing so prevalent nowadays, provider outage is seen as one of the largest concentration risks in the cyber underwriting space, so for a reinsurance firm like Hannover Re securing a hedge against it, via the capital markets, is an appealing way to source risk-specific retrocession for this niche, but potentially very costly peril.

The Cumulus Re cat bond protects Hannover Re against cloud outage loss accumulation within its large cyber reinsurance portfolio.

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Parametrix has acted as the modeling agent for this cloud outage cat bond and on an ongoing basis will be the calculation agent.

The Cumulus Re notes have been issued by Kaith Re Ltd., which is Hannover Re’s segregated accounts company in Bermuda and is often used for issuing private cat bonds.

The notes will provide Hannover Re with a single year source of retrocession against major cloud outages, using a parametric trigger.

Hannover Re will benefit from incremental retrocessional cover that will trigger if the delivery of specific cloud services, in certain U.S. cloud regions, by one or more named cloud service providers are interrupted in excess of a specified waiting period, the companies explained.

The Cumulus Re notes have been issued by Kaith Re as Reg 4(a)(2) notes, so private or cat bond lite notes, and have been placed with multiple investors.

While a relatively small transaction at $13.75 million, the Cumulus Re cloud outage cat bond begins to show a way the capital markets can respond to support what is seen as rapidly growing demand for this type of reinsurance coverage.

Parametrix, through its portfolio risk modelling and ongoing cloud performance monitoring, has enabled this deal, using its first-of-its-kind cloud model based on historical cloud outage data, collected by the Parametrix Cloud Monitoring System (PCMS).

The company hopes to help the reinsurance market effectively manage its cloud exposures, while enhancing the transparency and clarity regarding cloud systemic risk.

Commenting on the successful placement of the Cumulus Re private cloud outage catastrophe bond, Henning Ludolphs, Managing Director, Retrocession and Capital Markets at Hannover Re said, “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.”

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Ludolphs continued to explain that, “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.”

Jonathan Hatzor, Parametrix Co-Founder and CEO also commented, “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.”

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Recall that Hannover Re has a $100 million retrocession cyber quota share arrangement with investor Stone Ridge, so is no stranger to accessing the capital markets for its cyber protection needs.

This Cumulus Re cyber catastrophe bond is now the eighth cyber cat bond arrangement listed in our Deal Directory, but the first to feature a parametric trigger.

You can read all about this Cumulus Re (Series 2024-1) private cloud outage cyber catastrophe bond in our Deal Directory.

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