By Henry Gale

June 5 - (The Insurer) - Softening property market conditions at the June 1 (re)insurance renewals brought mixed experiences for companies selling parametric natural catastrophe coverage.

Market sources canvassed by Parametric Insurer acknowledged some accounts had been lost as clients chose to return to traditional covers but also highlighted new business opportunities as organisations used premium savings elsewhere to buy parametric protection.

Since many property (re)insurance programs for corporations and insurers in the U.S. renew on June 1, it is also a key period for parametric catastrophe covers. Parametric contracts may be agreed slightly later than the rest of the program to fill gaps in coverage or meet budgetary constraints.

According to market participants, the softening market, particularly for U.S. wind, has exposed some of the motivations companies had for buying parametric.

“Opportunistic” buyers, who had chosen parametric covers because they were cheaper than traditional insurance for part of their exposure or the only option available, have now returned to traditional products where they have become available at the right price. This had begun to occur last year, but brokers and insurers have observed this trend more in recent months.

The other category is “strategic” buyers, who bought parametric because of its distinct features, usually the fast claims process or the flexibility to use payouts to cover losses typically excluded from other policies, such as non-damage business interruption. These buyers continued to purchase parametric and some increased their limits.

The softening market has also brought a new group of companies to the parametric market: organisations that made premium savings in other classes of business and could use leftover budget to buy a supplemental parametric cover for the first time.

“Last year and the year before, we were (in discussions with) clients who were interested in parametric insurance, in buying such covers, but they were already over budget,” said Sébastien Piguet, co-founder and chief insurance officer at Descartes Underwriting. “And we see them now able to buy parametric insurance covers.”

Piguet said Descartes had seen “more and more clients who were able to generate savings on their traditional property program”.

Ben Ledger, parametric broker at Augment Risk, said reinsurance buyers were also using savings to buy parametric covers for the first time. “We haven’t seen retention rates go down, we haven’t seen the actual structure of these treaty programs change that much, but the price has gone down so they have additional budget,” Ledger said.

“So we are seeing a lot of (reinsurance buyers saying) … 'Let’s go buy a parametric for the first time. Let’s dip my toe in with a $10 million purchase or a $20 million purchase, and we’ll go and see how that works.'”

DIVERSE OPPORTUNITIES REMAIN

Parametric market dynamics are not homogeneous, with the covers being used for a wide variety of risks and industries around the world where conditions in local insurance markets differ.

Piguet said Descartes had seen an increase in requests to cover wildfire in the U.S., following the Palisades and Eaton fires in January. “There is a shortage in capacity,” Piguet said. “The dynamics are similar to what we were seeing for cyclone in previous years when the market was hardening.”

Megan Linkin, expert parametric nat cat structurer at Swiss Re Corporate Solutions, said there has been a sustained increase in U.S. tornado enquiries, sometimes paired with parametric hail coverage to fill severe convective storm deductibles.

“We have seen an increased interest in flood, especially in the wake of hurricanes Helene and Milton last year making landfall in Florida,” Linkin added. Swiss Re Corporate Solutions launched a parametric cover for U.S. storm surge in February in partnership with Aon and Floodbase.

Linkin said demand for storm surge cover was coming both from companies that already buy parametric wind insurance and those that have not purchased parametric covers in the past.

Ledger also highlighted severe convective storms in the U.S. and earthquakes in Latin America as “markets in distress” that are increasingly turning to parametric covers. Augment has continued to build out its presence in Latin America with the recent hire of Luis Mathieu, who has held CEO roles at companies including QBE Puerto Rico and Chubb Brazil.

RATE CHANGES

Parametric rates have been more stable than property rates at recent renewals. Sources said programs were either renewing flat or with decreases of up to 10%. In some cases, organisations negotiated increased coverage at the same rates, rather than rate decreases.