LatAm insurers are embracing parametric solutions: Augment Risk

Latin America is ripe for a rapid growth in the use of parametric risk-transfer products as insurers in the region, heavily exposed to catastrophe risk, look to leverage the advantages of such structures, which include regulatory benefits and faster payouts.

That is the view of the leaders of Augment Risk, the broker that specialises in strategic reinsurance and risk capital solutions with deep expertise in parametric products. So much so, to exploit this opportunity fully, the company brought in Alejandro Solorzano, a parametric specialist with previous expertise at Marsh and XS Global, as associate partner, LatAm Parametric. 

Based in Miami, Solorzano has been tasked with building a business for the broker out of Miami. While his main focus will be parametric products, he will also spearhead Augment Risk’s wider offering, which includes a suite of other alternative risk transfer products, to both Latin America and the US markets.

“Alejandro’s entrepreneurial spirit, unrivalled knowledge of the region, and proven track record in the parametric space make him the ideal addition to our team,” said Kurt Cripps, leader of Augment Risk’s parametric division. 

“We're known for our parametric expertise in markets such as London and Bermuda, but less so in Latin America. Alejandro will focus on Latin America and North America and help clients understand what we can offer and what sets us apart.”

Solorzano, who joined in January, said he was attracted by the opportunity because of how Augment Risk is transforming the way the market thinks about parametric reinsurance. 

Increasingly, it is being seen as capital management tool for clients. In a market such as Latin America, which faces severe challenges related to natural disasters and climate change, parametric policies are well suited to improving resilience.

 He believes it hit an inflexion point in the aftermath of Hurricane Maria in 2017,  where the economic losses were around $90 billion,  This deepened financial crisis for both the public and private sector .sector. The loss also occurred in the same year as a series of bad wildfires in Chile.

“The market transitioned from having a handful of parametric policies, to many more very quickly. We saw demand for wind, but also wildfire and earthquake parametric solutions,” he told Miami Reinsurance Week Today.

“The market is evolving quickly. Perhaps some corporates are a little more reactive, considering this after a loss if they did not get the payout they were looking for. But on the insurance side, there is an education process under way. They realise it can make them more resilient. These solutions can help them sleep at night.”

He stresses that the whole region is heavily cat exposed. Regulators want adequate insurance coverage, but capacity can be limited. Parametric solutions can be much more beneficial to clients and positively impact the balance sheet, he notes.

But Alejandro also has a wider remit and is already leading to some exciting developments on US soil being developed by Augment Risk. Cripps said parametric solutions are on a growth trajectory in Florida, where traditional solutions are almost at the end of the road, while solutions are being developed that could cover wildfire risk and severe convective storms, both growing challenges for US insurers. 

Cripps also offers wider, fundamental drivers of this growth trajectory. One is a growing appreciation by regulators of the benefits of parametric risk transfer, including the fungible nature of the capital at play. “That is one of the things often missed around parametric, but fungible capital has become valued by regulators. On top of that, regulators also like how quickly payouts are made.”

He also flags the importance of a collaboration unveiled in April last year between Augment Risk and Moody’s RMS. This focuses on a cross-section of perils including windstorms, earthquakes, wildfires and severe convective storms, and means the broker can access some of the most advanced risk analytics capabilities in the world and develop modelling specifically for parametric reinsurance protections. 

“For index-based solutions to grow as an asset class, the modelling must underpin the view of risk from an empirical and stochastic standpoint,” Cripps notes.

Kurt Cripps is leader of Augment Risk’s parametric division. He can be contacted at: Kurt.Cripps@augmentrisk.com

Alejandro Solorzano is associate partner, LatAm Parametric. He can be contacted at: Alejandro.Solorzano@augmentrisk.com

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