Parametric Insurance Surges as Climate Losses Hit $6.6 Trillion
Climate-related economic losses in the US have surged to $6.6 trillion over the past 12 years, driving a rise in demand for parametric insurance. This type of insurance, which provides swift payouts based on weather metrics, is gaining traction among large corporations and investors.
The Lumyna-Twelve Capital Parametric ILS Fund, launched in February, is at the forefront of this trend. It aims to return a couple of percentage points above the cat bond market. The fund will invest in parametric deals struck by Descartes Underwriting and Assicurazioni Generali, as well as catastrophe bonds for liquidity. It has attracted about €85 million ($99 million) of capital and expects to draw up to €200 million next year.
Parametric insurance is particularly appealing to renewables firms. Solar and wind farms are using it to protect against weather-related risks. Corporations like Sanofi, Liberty Latin America, and Greenbacker Capital Management have also adopted this insurance model. The market for parametric insurance is projected to almost double to $34 billion in the decade through 2033. Insurance-linked securities (ILS) investment managers are increasingly interested in parametric insurance due to its potential to beat cat bond returns. Investors in parametric funds avoid trapped capital, as payouts are settled within days, unlike cat bonds which can take months or years.
The Lumyna-Twelve parametric fund, with its strategic investments and attractive returns, is poised to capitalize on the growing demand for parametric insurance. As climate-related economic losses continue to rise, this fund offers a compelling solution for corporations and investors seeking to mitigate weather-related risks.
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