More insurers turn to parametric reinsurance, survey finds

By Henry Gale

June 5 - (The Insurer) - The demand for parametric reinsurance remained smaller than demand for commercial parametric insurance in 2024 but is growing more quickly, accordingly to a survey of senior market participants conducted by Parametric Insurer.

Respondents, who included the heads of parametric units at the many of the largest (re)insurers and brokers, ranked businesses as the type of organisation that bought parametric coverage in the greatest volume in 2024, followed by the public and charitable sector. Coverage for captive insurers was ranked third, followed by other (re)insurers buying reinsurance or retrocession covers.

But on average, respondents said the percentage increase in premium volume purchased by (re)insurers surpassed the growth in commercial, captive or public sector parametric coverage in their experience. While most respondents said the public and charitable sector had increased its spend on parametric insurance in 2024, it was also viewed as the slowest growing market.

The survey also asked about the relative prevalence and growth of parametric contracts written through different regulatory frameworks. Parametric risk transfer can be provided as insurance or reinsurance, but also as a derivative or ILS transaction.

Most covers can theoretically be provided through any of these frameworks, but catastrophic risks are more likely to be transacted as (re)insurance or ILS, and many non-catastrophic weather risks are transferred as derivatives. The distinctions between them include tax and accounting treatment, the requirement of insurable interest for insurance, different markets which can underwrite the risk and the possibility for secondary trading.

On average, survey respondents put reinsurance as a smaller market by premium volume behind insurance and derivatives, but also said it had grown more quickly between 2023 and 2024 in their experience than the others. While most believed the market for parametric insurance and reinsurance had increased, a narrow majority saw little or no change in parametric risk transfer contracts written as derivatives.