New €200M Fund Aims to Beat Cat Bond Returns with Parametric Insurance
A new fund, the Lumyna-Twelve Capital Parametric ILS Fund, launched in February, aims to outperform the cat bond market by a couple of percentage points. It has already attracted €85 million and expects to reach €200 million next year, reflecting growing interest in parametric insurance.
Parametric insurance, once used by small businesses and farmers, is now gaining traction among large corporations. Climate-related economic losses in the US, totalling $6.6 trillion over the past 12 years, are driving this demand. Insurance-linked securities (ILS) investment managers are exploring parametric insurance due to its potential to beat cat bond returns.
The Lumyna-Twelve fund is financially supported by Generali Investments Luxembourg SA, a top-tier European institutional investor. It offers investors the benefit of avoiding trapped capital, although some liquidity is sacrificed compared to cat bonds. The market for parametric insurance products is projected to almost double to $34 billion by 2033. Companies such as Sanofi SA, Liberty Latin America, and Greenbacker Capital Management have already adopted this type of insurance. Liberty Latin America received a swift $44 million payout after Hurricane Beryl, showcasing the advantages of parametric insurance.
Sebastien Piguet of Descartes Underwriting highlights that parametric models fill gaps left by other types of insurance policies in the face of climate change and extreme weather events.
The Lumyna-Twelve Capital Parametric ILS Fund, with its ambitious return targets, is at the forefront of a growing trend in insurance. As climate-related losses mount, corporations are turning to parametric insurance for its speed and efficiency, driving investment in this sector.
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