Global Parametrics Natural Disaster Fund to be seeded by DFID

by Artemis on February 26, 2018

Global Parametrics, the parametric and index-based risk transfer start-up backed by the UK and German governments, is set to receive a seed investment in its insurance-linked Natural Disaster Fund from the UK government’s Department for International Development (DFID).

A Reuters article first stated that the Department for International Development (DFID) is set to invest as much as £25 million into the Global Parametrics managed Natural Disaster Fund over a 20-year period. This was confirmed by a DFID spokesperson, Reuters said.

Global Parametrics launched in 2016, targeting the provision of parametric or index-linked risk transfer and aiming to sell insurance or reinsurance protection to entities lacking in coverage, or where there is no weather, catastrophe or climate related coverage at all.

When Global Parametrics launched the firm always sought to leverage the efficiencies of the capital markets and bring third-party capital to bear on the largely emerging or developing market weather, climate and catastrophe risks it expects to underwrite.

The backing for Global Parametrics will be found in a managed investment fund, akin to an insurance-linked securities (ILS) fund, called the Natural Disaster Fund.

DFID, which has already agreed to back Global Parametrics launch with operational funding, is set to also invest in the Natural Disaster Fund with this £25 million commitment.

German development bank KfW, which supported the launch of Global Parametrics with an investment from its German government backed Climate Insurance Fund, is also looking at making an investment into the Natural Disaster Fund, Reuters reported.

Stefan Hirche, running projects at KfW, is reported to have said, “We are considering a direct investment,” but would not be drawn on an amount.

According to the article, the target is to capitalise the Natural Disaster Fund with roughly $200 million within the next three years.

A Global Parametrics spokesperson told Artemis that fund-raising for the Natural Disaster Fund would begin in earnest later this spring.

The Global Parametrics model of offering protection to organisations lacking in coverage today, through parametric risk transfer backed by a third-party capitalised risk fund, is a unique offering and for investors looking to tap into emerging sources of risk the Natural Disaster Fund could be an interesting investment proposition.

Working with the parametric risk transfer provider, as an investor backing the Natural Disaster Fund with insurance or reinsurance capital, could be very attractive to pension funds and sovereign wealth investors that are looking for socially responsible investments, that also offer an uncorrelated return and add diversification to their portfolios.

Global Parametrics has a unique model of utilising advanced risk modelling and data analysis, alongside parametric insurance triggers, backed by a third-party capitalised investment fund structure. So its work is akin to the ILS market and other alternative reinsurance strategies, while focusing largely on untapped areas of underwriting opportunity..

It’s an example of taking the efficiencies offered by use of the global capital markets in reinsurance and replicating it at scale to help those in less developed and low-income locations, where risk transfer and risk capital efficiency are essential for any insurance or reinsurance schemes to become viable offerings.

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