CrowdStrike event can build more confidence in cyber cat bonds: Hatzor, Parametrix

The recent global IT systems outage caused by the CrowdStrike event can serve to build more confidence in cyber catastrophe bonds, as some of the biggest questions posed about this new segment of insurance-linked securities (ILS) were about how losses from a major cyber event would manifest, Jonathan Hatzor, CEO of Parametrix told us.

Speaking with Artemis and our sister publication Reinsurance News yesterday, Jonathan Hatzor, co-founder and the CEO of Parametrix, a specialist in parametric cloud downtime cyber insurance and reinsurance protection, explained that the fallout from the CrowdStrike linked outage may provide a positive test for cyber ILS and excess-of-loss reinsurance markets.

“Definitely from the point that we’re sitting right now, we don’t believe it will trigger any of the ILS transactions that we saw at the end of last year and this year,” Hatzor explained.

He also said that he’s currently not sure any cyber excess-of-loss-reinsurance arrangements will get hit by this event, especially for carriers that are more exposed to small and medium sized enterprise risk.

Reinsurers will feel some impacts through the quota share arrangements that still proliferate in the cyber market, but the carriers exposed to large enterprises are expected to be the most affected.

As we reported yesterday, Hatzor’s firm Parametrix has estimated that the insurance industry loss caused by the CrowdStrike linked global IT outage could fall in a range of $540 million to $1.08 billion, driven by the most affected large corporations.

Turning to the parametric cloud outage Cumulus Re (Series 2024-1) catastrophe bond that benefits global reinsurance firm Hannover Re and for which Parametrix acts as calculation agent, Hatzor suggested that this cat bond is unlikely to be affected given this wasn’t a cyber event where the cloud went down.

“As the calculation agent I cannot comment,” he said. “But I can state the published facts. Cumulus Re is a cat bond triggered by a cloud outage event that’s past a specific waiting period in some specific regions.”

Hatzor continued to explain, “This particular event wasn’t a cloud outage event, it was a CrowdStrike event that affected Microsoft computers and machines. If we saw a cloud outage of this magnitude, the losses would be totally different. It would be much worse.

“CrowdStrike and Microsoft published that the outage affected 8.5 million computers. On my roughest estimation, we’re talking about around 15,000 businesses that were directly impacted by the CrowdStrike event. And then you have a ripple effect on companies that have been impacted because their service providers have been impacted.

“But if it was the cloud that went down, it would be a whole different game.”

Asked what the effects of this significant IT disruption event could be on the nascent cyber catastrophe bond and ILS market, Hatzor has a positive view.

“For the short term, if you want to issue any transaction tomorrow, yes, it’s going to influence it,” Hatzor said. “I think people will hold off a little bit.”

Adding that, “But for the longer term, as the dust is settling, you’ll see a positive impact. Everybody wanted the test of a big cat event, because this was a big question mark in the industry. What would happen if a big service provider goes down for a significant amount of time? What is going to be the impact, and who is going to be hit? These were the biggest questions.”

Hatzor continued to explain, “Some will experience significant losses, and some will experience very minimum losses. That will show that insurers and reinsurers can reach towards diversification.

“For the ILS market, for cat bonds, it helps to show that they can choose different portfolios and support different carriers to provide diversification. That will create more confidence for the longer term, I think.

“It is probably the largest loss from a single cyber event that this industry ever saw, but the fact that not all of the market was impacted on the same level is a very good signal for ILS and reinsurance excess of loss.”

Read about every cyber cat bond transaction, including the first private cat bond deals and the more recent 144A cyber cat bonds, by filtering our Deal Directory by peril to view only cyber cat bond transactions.

Also read:

– Parametrix estimates CrowdStrike insured losses at between $540m and $1.08bn.

– Beazley CrowdStrike losses expected well-below cat bond attachment: Berenberg.

– Beazley says no change to combined ratio guidance after CrowdStrike.

– CrowdStrike tests cyber cat bonds & reinsurance, demonstrates importance: Aon’s Egan.

– CrowdStrike outage: Cyber cat bond prices stable, uncertainty palpable.