Parametric Reinsurance

Parametric reinsurance triggers payouts based on objective, predefined physical measurements—rather than traditional loss adjustment—allowing insurers to access fast and transparent recovery after catastrophic events.

Insurers increasingly use parametric cover to design tailored natural perils protection and address protection gaps across their conventional reinsurance tower. It helps stabilize earnings, reinforces balance-sheet strength, and provides support on perils and scenarios poorly covered by conventional reinsurance towers. It also supplies immediate capital for reinstatement premiums following catastrophic events.

In practice, parametric cover acts as a flexible, responsive complement that enhances the overall effectiveness of any conventional reinsurance structure and is an essential component of the reinsurance toolkit.

✓ Fully Tailored, Never One-Size-Fits-All

Descartes designs parametric structures around each cedant’s specific portfolio characteristics and internal risk view. This ensures a close alignment between the parametric payout and the insurer’s actual loss experience. Unlike rigid industry-index products such as ILWs, our solutions are fully flexible and purpose-built for each insurer.

✓ Modelled-Loss Options for Perfect Alignment

To ensure the structure mirrors the cedant’s own view of risk, Descartes develops the optimal parametric proxy for each portfolio. Modelled-loss solutions can be structured using Descartes’ proprietary models, or the cedant’s preferred vendor models to guarantee seamless integration with internal risk frameworks and risk processes.

✓ Transparent Back-Testing and Evidence-Based Design

We analyze historical portfolio data and loss history to show exactly how the parametric structure would have responded to past events. This quantitative back-testing provides high transparency on expected performance and reinforces confidence in the coverage design.

✓ Objective Triggers, No Loss Adjustments

Parametric reinsurance pays out when pre-defined, objectively measured physical indices are exceeded. Because recoveries are not tied to incurred loss calculations, there is no need for lengthy claims adjustment.

✓ Weeks, Not Months or Years

Traditional treaties — and index instruments such as Industry Loss Warranties — often require months or even years to finalize loss computations. Descartes’ parametric structures deliver contractual certainty and payouts within weeks of the triggering event or the end of the policy period.

✓ Liquidity When Insurers Need It Most

Fast recoveries provide immediate cash flow for critical financial needs, including loss fund financing, funding of reinstatement premiums, and maintaining dividend policies after a major event. This accelerated liquidity strengthens financial resilience and supports faster recovery following catastrophic losses.