Parametric newsletter: Issue Six

The details matter.

It is inherent in every parametric policy that the possibility of a payout depends on specific values. The miles between an insured location and an earthquake’s epicentre, the minutes a flight has been delayed or the millimetres of rainfall in a certain area could all determine whether parametric payouts are triggered or not.

Many trigger thresholds were met as Hurricane Beryl ravaged parts of the Caribbean and southeastern Mexico last month. But there were also some near misses, including the Jamaican government’s World Bank-issued catastrophe bond, which made no payout.

The cat bond’s parametric trigger has since come under scrutiny, with a report from the Vulnerable Twenty (V20) group of countries calling for the World Bank “to reassess the usefulness of this complex and costly financial instrument and even perhaps for Jamaica to renegotiate the terms of its cat bond to better serve its natural disaster financing strategy”.

While the report did not appear to be criticising the concept of parametric risk transfer, it said the structure of that bond, which pays out based on a hurricane’s track and minimum central pressure, “protects investors but leaves Jamaica vulnerable to catastrophic risk”.

Whether weighing up the differences between central pressure and wind speed-based triggers or choosing attachment points, the various options when structuring a parametric risk transfer program all have their own benefits and drawbacks. The V20 report’s call for “broader trigger conditions” would almost certainly make coverage more expensive, for example.

The launch issue of Parametric Insurer in two weeks’ time will include an analysis of the most prominent structures used in the parametric market for hurricane, typhoon and cyclone risk, alongside the latest updates, exclusive news and interviews.

This new publication will be the best way to stay informed on the alternative risk transfer market, from the biggest developments to the significant nuances. You can sign up to receive the first issue for free here.

As a preview, you can also download five of the top articles from this week’s newsletter for free in our Issue 6 Highlights.

More payouts from Beryl

Telecommunications company Liberty Latin America expects to receive $44mn after Hurricane Beryl triggered a parametric program placed by Augment Risk, The Insurer revealed last week.

The state government of Quintana Roo in Mexico has also received a payout of around $430,000 to restore parts of the Mesoamerican Reef damaged by Beryl.

New parametric product launches

The Cayman Islands National Insurance Company has launched a parametric insurance product for homeowners, after the Cayman Islands was also affected by Beryl.

Newly launched UK-based MGA Gigasure is using Blink Parametric’s technology to provide automatic flight delay and luggage disruption solutions to travel insurance policyholders, The Insurer revealed. SiriusPoint is providing capacity.

Amwins has partnered with Floodbase to launch a parametric flood insurance program for US golf courses.

Liberty Mutual Re is backing a parametric drought insurance scheme for coffee farmers in Kenya, which also includes real-time weather advisory services from insurtech Sprout.

Increased adoption of alternative solutions

The use of parametric insurance across Africa is growing, with African Risk Capacity’s insurance revenues more than doubling in 2023.

The global ILS market set new records in the first half of 2024, according to Swiss Re, with more than $12.3bn in primary issuances across 49 transactions. Meanwhile, AM Best said that ILS capacity was growing modestly but not exceeding demand.

Behind the growing market for alternative risk transfer are individual companies buying new solutions for the first time or increasing their coverage. Energy firm Star Group has increased its weather derivative coverage for 2025, with the maximum payout rising 20 percent to $15mn.

Outdoor Kansas festival Buskerfest purchased parametric rain insurance coverage from Vortex Insurance. Heavy rain had been forecast which could have disrupted the event, but ultimately the sun came out and no payout was triggered.

Regulation and people moves

The regulatory status of parametric risk transfer is another important nuance, with regulatory issues holding back the adoption of parametrics in some parts of the world.

Insuralex, a group of more than 50 law firms, has updated its report on the regulation of parametric insurance in Latin America, finding that Chile and Colombia have both introduced legislation to define parametric insurance for the first time.

Meanwhile, Matthew Gabin, who was involved in developing early parametric (re)insurance contracts from a legal angle at Allianz Risk Transfer and has since worked at Swiss Re and Arbol, has joined parametric specialist NormanMax as general counsel.

NormanMax has continued to build out its team as it announced the hire of Topsail Re’s Daniel Turgel as chief underwriting officer and promoted Mark Groenheide to chief revenue officer.

Can't access some of this week's articles? We've made the top 5 pieces from this week's newsletter free to view! Download the Issue Six Highlights here.