Hannover Re, in partnership with cloud monitoring and insurance services firm Parametrix, has sponsored a $13.75 million catastrophe bond, an industry-first that covers sustained computer cloud outage loss accumulation risks.
Cumulus Re, the catastrophe bond issued by Hannover Re’s wholly owned Bermuda-based reinsurer Kaith Re, aims to provide Hannover Re with incremental retrocession protection. This protection is triggered if specific cloud services in designated US cloud regions are interrupted for longer than a set waiting period, as detailed in the terms of the bond.
This bond is part of Hannover Re’s cyber reinsurance portfolio, with Parametrix serving as the modeling and calculation agent for the bond, placed with multiple investors.
This new “cat bond lite” also aims to address the increasing demand for specialized reinsurance coverage against cloud outages.
Henning Ludolphs, managing director of retrocession and capital markets at Hannover Re, highlighted the growing reliance of businesses on cloud services, and the associated risks.
“Businesses are increasingly reliant on cloud services for storage and computing power, which has driven exposure to cloud outage,” Ludolphs said. “Cloud outage can lead to significant business interruption losses for the insured, and subsequently for the re/insurance market.”
He further emphasized the strategic importance of this new financial instrument amid the severity that can arise from cloud outages.
“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 growing the cover over time together with our investors,” Ludolphs said.
Sharon Haran, chief commercial officer at Parametrix, also commented on the critical need for such solutions in the insurance industry.
“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,” Haran said. “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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