“Huge increase” in parametric discussions in Monte Carlo: panel

Cedants are increasingly looking to use parametric covers within their reinsurance programs, according to a panel hosted by The Insurer TV at the Monte Carlo Rendez-Vous.

The panel agreed that there had been a significant rise in interest in parametric reinsurance ahead of the January 2025 renewals compared to previous years.

“Almost every conversation at some point has had an interjection about parametrics – either clients trying to understand more about how it’s being used or, actually, interestingly, potential capacity providers who are focusing on this space,” said Nicky Payne, partner at McGill & Partners.

Some cedants are looking to use parametric cover for peak perils, such as Atlantic hurricanes or earthquakes in Japan. “It’s also been very interesting to see people looking for a sideways protection, maybe third event or subsequent, just in case the cost of these repeated events gets a little too much,” said Stuart Newcombe, active underwriter of NormanMax Syndicate 3939.

Other demand for parametrics comes from areas affected by recent events, such as earthquakes in Turkey, according to Kevin Dedieu, chief scientific officer of Descartes Underwriting. He added that there are discussions around secondary perils, such as wildfires, floods and hail, as well as requests around cyber risks.

“It’s a much more flexible product than people actually appreciate,” said Payne. She explained that parametric solutions are getting more traction as cedants explore how to design parametric covers that are complementary to their existing reinsurance program.

Unlocking new capacity

One reason reinsurance buyers are attracted to parametrics is that “the capacity seems to be quite separate”, said Payne. “You see companies now actually allocating capacity to parametrics, so it’s a way of sourcing a different pool of capacity and using it in a different way.”

Dedieu added that alternative capital and ILS funds had a growing appetite for parametric risks, “because of the simplicity and transparency of the structures”.

“[Capacity] comes mainly from traditional players, but we see more and more appetite from ILS players,” said Dedieu.

Here to stay?

The panellists agreed that the increased use of parametrics was not a cyclical trend but a permanent shift.

“I don’t believe it’s a short-term solution,” said Newcombe. “Some of the primary benefits to clients are about the speed and the certainty of payout, which is always an attractive feature when you’re trying to juggle a balance sheet and make sure you’ve got that liquidity at the time you need it most after a potentially catastrophic event.”

“The advantages will not disappear with the changing rating environment,” added Dedieu. “And actually, we see cedants thinking about adding more perils rather than shifting to more traditional programs.”

Cedants are also approaching parametric covers earlier and more strategically in their reinsurance buying, explained Newcombe. “It’s great to see that the parametric angle is being approached ahead of the placements, whereas maybe for the past years, people have carried out their traditional reinsurance program buying and then worried about any gaps or concerns they may have had.

“To see it as a planned part of the placement discussion is very refreshing.”

Watch the 14-minute panel discussion at The Insurer TV’s pop-up studio in Monte Carlo to hear McGill & Partners’ Nicky Payne, Descartes’ Kevin Dedieu and NormanMax’s Stuart Newcombe discuss: