Britain puts £25million into natural disaster hedge fund

LONDON: Britain is backing a hedge fund aiming to raise $200 million (£143.07 million) to give developing countries access to climate risk insurance, a source with direct knowledge of the matter said on Friday. Britain’s Department for International Development (DFID) has invested £25 million in the Natural Disaster Fund, managed by Global Parametrics, the source added.
DFID did not immediately respond to request for comment.
G7 governments are looking to address a lack of access to insurance in the developing world, with a goal to insure an additional 400 million people against climate disasters by 2020.
Insurance could cover up to $6.8 billion of the losses from natural disasters if more insurance structures were used, a report prepared for DFID last year showed.
These include so-called “parametric” structures, where insurance payments are triggered by a predetermined factor, such as an increase in water height, at a specified location — a quicker and cheaper process than waiting for insurers to calculate exact losses.
UNIQUE MODEL
Meanwhile, investors have flocked to so-called insurance-linked securities (ILS) such as catastrophe bonds in recent years, due to their high returns.
German development bank KfW said it may also invest in the Global Parametrics ILS hedge fund, which is being marketed to pension funds and reinsurers.
“We are considering a direct investment,” Stefan Hirche, a project manager for financial sector development at KfW, said, although the size had not yet been decided.
“Global Parametrics has a unique model of transferring weather risk out of developing countries. The model could also be used in other areas such as renewable energy and infrastructure.”
The fund expects to raise $200 million within the next two to three years, the source added.
KfW’s Insuresilience Investment Fund and DFID also contributed a combined three million pounds to the set-up of Global Parametrics, Hirche said. The Global Parametrics fund launch joins a number of other ILS fund launches after insurance rate rises following the fires, floods, hurricanes and earthquakes of 2017 which led to record insurance losses of $135 billion.
Global Parametrics is working with World Vision’s microfinance unit to provide climate insurance for up to four million people in six countries in Africa and Asia, the two organisations said last month. — Reuters