Parametric structures pick up despite Jamaican disappointmentThe launch of a groundbreaking new fund has underscored the growing appeal of parametric insurance structures. This trigger or index-linked form of cover, which pays out when a pre-determined event occurs, unlike traditional indemnity insurance, offers notable potential in development finance despite a high-profile recent failure. The “pioneering” Lumyna – Twelve Capital Parametric ILS Fund is the first insurance-linked securities fund based on parametric structures, according to its investment manager Twelve Securis. Its launch “reflects the maturity of the parametric market, demonstrating that this expanding sector now provides viable investment opportunities for ILS investors with a distinct risk profile,” said Rhodri Morris, head of ILS analytics at Twelve Securis. It “provides an important potential source of new capital to underwrite parametric insurance risks,” said Kevin Dedieu, chief scientific officer and co-founder at Descartes Underwriting. Descartes, a parametric specialist that partners with Italy’s mega insurer Generali on natural catastrophe cover, serves as an originator and consultant to the fund. The fund will hold 40%–45% of its assets (US$46m currently ahead of a second tranche from its undisclosed European institutional seed investor) in private parametric transactions and a similar proportion in catastrophe bonds. For the sake of liquidity and diversification, the latter may also include traditional indemnity structures – as can its holdings of industry loss warranties. Twelve Securis and alternative assets platform Lumyna (part of Generali) began marketing the fund, which is categorised as a light-green Article 8 vehicle under the European Union’s Sustainable Finance Disclosure regulation, to investors last month. “You are essentially sacrificing a degree of liquidity in exchange for enhanced returns,” Morris said, noting that parametric structures also lower ILS investors’ potential exposure to “trapped collateral” through the lengthy claims assessment that can impact traditional cat bonds. The fund is focused initially on wind and earthquake risk in North America. In time, it may expand to other “peak perils” such as European and Japanese wind and earthquake risk and even “secondary perils” such as wildfires or floods. But this will require “deep understanding of how the underlying modelling works, not only for each peril individually but also in terms of their interdependencies and correlations,” Morris said. Besides the seed investor, several other institutions have already invested in the fund’s euro, sterling and US dollar share classes. Australian dollar, Swedish krona, Swiss franc and yen classes are also available. Developing economies too While the new fund is focused on the most developed markets, parametric structures offer significant potential in developing economies – where the bulk of the world’s US$1.8trn “protection gap” lies, according to Swiss Re. “Parametric has an enormous role to play in building corporate and national resilience, especially in the face of climate change,” said Dedieu, who highlights the trigger-based structure’s ability to “quickly [put] money into the hands of those in need following a catastrophic event”. Moreover, “potential capital providers have often very little exposure in [developing] countries,” Rowan Douglas, chief executive, climate risk and resilience at insurance broker Howden, told IFR previously. An October 2024 report by Generali and the UNDP’s Insurance and Risk Finance Facility identified a host of natural hazards, plus agricultural and business risks, that parametric insurance can mitigate. It argued that the structure can support most of the 17 United Nations Sustainable Development Goals. “There are use cases for parametric that
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