Global Parametrics, the parametric and index-based disaster risk transfer company, has launched a new natural catastrophe focused investment fund that has received backing from global reinsurance firm Hannover Re and the German government.
Working with the German Federal Ministry for Economic Cooperation and Development (BMZ), the German Development Bank (KfW) and reinsurance firm Hannover Re, Global Parametrics and this group have formed and capitalised what is termed the Natural Disaster Fund (NDF) Deutschland.
Global Parametrics will actively manage the NDF Deutschland and the fund has secured initial commitments of €25 million from BMZ.
Importantly, global reinsurance firm Hannover Re has demonstrated its confidence in the Global Parametrics model, committing $50 million of matching capacity to the NDF funds.
This could be vital for Global Parametrics, in helping it to achieve some level of scale through having greater capacity available to underwrite risks and build a diversified portfolio.
The new NDF Deutschland will invest in risk transfer instruments exclusively relating to natural catastrophes and climate risks in developing markets.
It follows on from and will partner with the original Global Parametrics fund, the Natural Disaster Fund (NDF) UK, which was launched in January 2018 with backing and £25 million of committed capital from the UK’s Department for International Development (DfiD).
Hannover Re’s commitment to the new Natural Disaster Fund is said to underline “the opportunity for private sector investors to participate in disaster risk-financing in untapped markets, which mitigate the impact of climate-linked disasters to business and communities, building resilience and expediting recovery alongside delivering commercial returns to investors.”
It also reflects Hannover Re’s appetite to source risk for its own balance-sheet in parametric form, as well as to tap into emerging risk regions where evident reinsurance protection gaps are there to be filled.
Dr. Maria Flachsbarth, Parliamentary State Secretary to the Federal Minister for Economic Cooperation and Development (BMZ), commented on the launch of the new fund, “The NDF is an innovative mechanism that brings together public and private insurance players for the benefit of poor and vulnerable people who far too often face a protection gap. While about 50 percent of disaster losses are covered by insurance in high-income countries, the corresponding proportion in poorer countries is less than five percent.
“The BMZ is committed to help closing this gap through a substantive contribution to the NDF. In doing so, the NDF will play a crucial role to achieve the targets of the InsuResilience Global Partnership’s new Vision 2025 that was presented at the UN Climate Action Summit in September. Over the next six years, the Vision aims to cover 500 million poor and vulnerable people against disaster and climate shocks through pre-arranged risk finance and insurance mechanisms.”
Hector Ibarra, CEO of Global Parametrics added, “Extreme weather and natural disasters are a key cause of an endemic poverty cycle in many developing markets and with the onset of climate change, the situation can only get worse. Global Parametrics, through its Natural Disaster Funds and commercial partnerships, is proud to champion a systemic change by providing both the innovative products and access to risk capital to organisations that directly impact the lives of those on the ground.
“The successful mobilisation of funding for the NDF demonstrates the confidence our deeply experienced investors feel both in our team, our pipeline and in the potential of this approach to deliver measurable impact outcomes alongside commercial returns.
“We are delighted that the NDF’s investors share our vision for creating sustainable financial solutions for disaster resilience in developing markets and are grateful to them for placing their trust in our proposition.”
Henning Ludolphs, Managing Director Retrocession & Capital Markets at Hannover Re, also said, “Hannover Re’s commitment to make contributions to close the protection gap is an important element of our sustainability strategy. Our experience has shown that innovative parametric concepts with fast claims payment processes are most effective when it comes to mitigating the impact of natural disasters that are particularly devastating in low-and-middle income countries.
“At Hannover Re, we are convinced that a wide range of partnerships is paramount in order to reduce the protection gap. Therefore, we are more than happy to support the Natural Disaster Fund, not only with additional risk capacity, but also with our expertise.”
Getting the backing of a major global reinsurance firm could be key for Global Parametrics as it looks to scale out its parametric risk transfer offering.
Hannover Re could become a key capacity partner and can clearly mobilise much more capital if required and the underwriting opportunities are available.
Global Parametrics originally launched with the ambition to run its Natural Disaster Fund’s (NDF) almost as an insurance-linked securities (ILS) offering, providing third-party, institutional investors with a way to access the returns of global parametric disaster risk underwriting.
With Hannover Re as a seed capacity provider and the rest of the capital from government contributions the company now has a higher level of capacity to at least build a portfolio through which it can demonstrate this opportunity to the ILS investor base.
If Global Parametrics can build a portfolio of diversified, emerging region catastrophe and climate risks on a parametric basis, that delivers returns attractive enough for major global institutional investors, its fund offering could be among the most attractive and diversifying ILS strategies in the market.
This new partnership with Hannover Re could be key in realising this goal.