Augment Risk’s Global Parametric Specialty is championing the progression of parametric reinsurance with its transformative approach, transitioning from indemnity-based products to parametric, driven by improved data and a desire for more efficient risk and capital management. From weather catastrophes to threats of extreme temperatures presented by climate change, the traditional way of managing risk is no longer sustainable given the frequency of events. Augment Risk’s bespoke parametric solutions are catering to the evolving requirements of clients with a new way of purchasing reinsurance, designed to enhance the traditional client operating model through a fast and unrivaled claims recovery process, bringing a new option for peak catastrophe risk.
Timeliness and Diversification in Risk Management
The major advantages of parametric reinsurance lie in the transparency of the transaction and the benefits it offers the buyer. Policies can be placed on a single risk/single peril basis or cover many risks within a portfolio. Some of the largest transactions in the world cover multiple territories and multiple perils. The timeliness of the claims process is beneficial to both the risk buyer and seller. With higher costs and increased self-insured retentions, clients are managing far greater risk volatility, especially with RDS movements and model miss concerns. Parametric coverage has never been a more viable and commercial alternative, providing clients the comfort that cat risks are managed most efficiently and cost-effectively.
Augment Risk ensures that all reinsurance placements brought to market have independent settlement agents, predefined fallback methodologies, and are based on publicly available independent data sources. By utilizing these objective triggers and independent data sources, potential moral hazards are eliminated, and claims are settled by pre-agreed terms. Traditional ultimate net loss (UNL) covers carry significant basis risk themselves with any exclusion or clauses such as hours specifications for timeframe, which cause differences in conditions.
Parametric as an Alternative in Challenging Markets
As we move into 2024, there are several risks on the horizon that lend themselves to parametric placements; in particular, the upcoming transition from El Nino to LaNina, coupled with warming oceans, may precipitate a particularly active Atlantic storm season.
Parametric reinsurance emerges as a beacon in such challenging market conditions, providing clients with a genuine alternative to traditional products.Clients seek coverage through a dislocated market (cat bonds, Retro, and ILWs) and we see parametric reinsurance as a genuine alternative and a part of a buyer’s tool kit.
We partner with clients on their risk management journey, securing the best coverages at the best prices by leveraging all available capital markets and products. This global, capital-agnostic approach liberates clients from the constraints of increased deductibles and reduced limits and offers an attractive option in a hard market.
Parametric policies are now modeled to offer solvency benefits to buyers through our proprietary modeling agreements. The agreed value basis of parametric products allows for more robust portfolio valuations, shielding against inflation, loss creep, and fraud that have plagued the traditional market in recent years. There are many benefits aligned with the adoption of parametric solutions. Firstly, liquidity: payments for a measurable parametric event will arrive within 60 days, enabling clients to continue service with fewer interruptions. Secondly, given the payout is broad-based and includes PD, BI, and NDBI, clients can deploy the capital for balance sheet, reinstating their reinsurance program or utilizing it in the aftermath of an event.
The Augment Risk Method
Augment Risk distinguishes itself by designing bespoke parametric solutions for its clients, avoiding the basis risk often associated with off-the-shelf indices. With a commitment to consistency in products and pricing, we manage parametric policies from inception to settlement, drawing on a network of over 40 potential capital markets. These policies are globally available wherever there is mature data, offering clients increased coverage, reduced deductibles, and competitive prices, challenging the traditional market and fostering industry innovation.
As we navigate the complexities of the reinsurance industry, Augment Riskemerges as a pioneer in the realm of parametric reinsurance. We are poised to lead the industry toward a future where parametric products play a central role in risk transfer. In the face of market headwinds, the timeliness, transparency, and flexibility offered by Augment Risk’s parametric solutions position us to deliver success for our clients in an ever-evolving landscape.
For more information, please contact: info@augmentrisk.com