Hannover Re and a parametrics company along with several German economic development agencies have created a natural disaster fund targeting investments in risk-transfer instruments relating to natural catastrophes and climate risks in developing markets.
The fund — the Natural Disaster Fund Deutschland— has secured initial commitments of EUR 25 million from the German Federal Ministry for Economic Cooperation and Development (BMZ).
In a market first, Hannover Re, one of the largest reinsurance groups in the world, has committed USD 50 million of matching capacity to the funds.
The fund’s launch was announced by Global Parametrics (GP), a UK provider of parametric protection against climate risks in developing markets, and the BMZ, in partnership with the German Development Bank and Hannover Re.
The NDF Deutschland, actively managed by GP’s team, has secured initial commitments of EUR 25 million from BMZ and will target investments in risk-transfer instruments exclusively relating to natural catastrophes and climate risks in developing markets –
The fund will focus on regions that are disproportionately affected by extreme weather events. The fund follows on from and will partner with, the NDF UK, which was launched in January 2018 with GBP 25 million of committed capital from the UK’s Department for International Development (DfiD).
The participants see the commitment from Hannover Re as underlining the opportunity for private sector investors to participate in disaster risk-financing in untapped markets that mitigate the impact of climate-linked disasters to business and communities, building resilience and expediting recovery along with delivering commercial returns to investors.
“The NDF is an innovative mechanism that brings together public and private insurance players for the benefit of poor and vulnerable people who far too often face a protection gap,” said Dr. Maria Flachsbarth, Parliamentary State Secretary to the Federal Minister for Economic Cooperation and Development (BMZ).
Flachsbarth noted that while about 50% of disaster losses are covered by insurance in high-income countries, the corresponding proportion in poorer countries is less than five percent.
Over the next six years, the hope is to cover 500 million poor and vulnerable people against disaster and climate shocks through pre-arranged risk finance and insurance mechanisms, the announcement added.
Hector Ibarra, CEO of G,P said that extreme weather and natural disasters are a key cause of the poverty cycle in many developing markets and with the onset of climate change, the situation can only get worse. Global Parametrics, promises to provide innovative products and access to risk capital to organisations that directly impact the lives of those on the ground. “We are delighted that the NDF’s investors share our vision for creating sustainable financial solutions for disaster resilience in developing markets and are grateful to them for placing their trust in our proposition,” Ibarra said.
Commenting on the fund launch, Henning Ludolphs, Managing Director Retrocession & Capital Markets at Hannover Re, said, closing the protection gap is an important element of his company’s sustainability strategy.
“Our experience has shown that innovative parametric concepts with fast claims payment processes are most effective when it comes to mitigating the impact of natural disasters that are particularly devastating in low-and-middle income countries,” Ludolphs said. “At Hannover Re, we are convinced that a wide range of partnerships is paramount in order to reduce the protection gap. Therefore, we are more than happy to support the Natural Disaster Fund, not only with additional risk capacity, but also with our expertise.”
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