Parametric NatCat

Effective solutions to help narrow insurance gaps

Due to the growing impact of climate change, the world is confronted with an increase in the frequency and severity of natural disasters. In addition, geophysical threats such as earthquakes lead to significant humanitarian and economic losses. Parametric NatCat solutions based on predefined triggers and payout schemes offer broad protection against a wide range of natural disasters – for clients in both the corporate and public sectors.

Parametric NatCat solutions enable coverage for otherwise difficult-to-insure risks, such as non-physical business interruption, tax income shortfall and emergency response costs. They facilitate swift claims settlement and provide accelerated financial support. That’s why they help to narrow insurance gaps and to increase insurance penetration in largely underinsured, but at the same time highly exposed geographies.

Parametric NatCat Solutions – Suitable for you?

Client segments benefiting from parametric solutions

NatCat parametric solutions offer Re Insurance for a variety of clients

Benefits of parametric covers

What expertise and services you can expect from us

Munich Re offers extensive know-how of natural disaster risk management and provides parametric solutions for a wide and geographically diverse spectrum of natural disaster risks and for various client segments.

It is our aim to continuously push the boundaries of parametric solutions towards perils beyond tropical cyclone and earthquake. This means: Providing customised solutions even for loss events such as catastrophic flooding, excessive rainfall or drought and hail and other severe convective storms.

Smart parametric solutions for NatCat perils
Our offerings out of the box

Infographic detailing triggers for earthquakes, hurricanes, floods, and extreme weather, with data sources listed.

Parametric NatCat - Frequently Asked Questions

1. What is a parametric NatCat cover and how does is work?

A parametric NatCat cover provides quick, predefined payouts based on the occurrence of specific natural events measured by objective and independent data sources, such as windspeed, earthquake intensity, or water levels.

Unlike traditional insurance, which requires an assessment of actual losses, parametric solutions pay out when agreed trigger conditions are met – for example, when windspeed, earthquake intensities or water level thresholds are exceeded within a predefined area or at specified locations – are met. This mechanism enables faster payouts, reduces administrative complexity, and supports effective external risk management.

2. Who buys parametric NatCat covers?

Parametric NatCat covers are purchased by customers exposed to natural catastrophes who face limitations with traditional insurance solutions - such as non-physical-damage business interruption – or who require immediate liquidity following a catastrophe event to support rapid recover. As a result, parametric NatCat covers are used across all client segments such as corporates, financial institutions, small and medium-sized enterprises (SMEs), retail clients and public sector entities.

3. What is typically Munich Re’s capacity size for a parametric NatCat cover? Does Munich Re have minimum or maximum capacity limits?

Most of our parametric covers have a capacity between USD 20 million and USD 50 million, although Munich Re does not impose a formal maximum capacity. In practice, we generally do not write parametric covers below USD 1 million. For covers with a capacity exceeding USD 100 million, we typically either share the risk with partners or advise clients that an Insurance-Linked Securities (ILS) structure may be more attractive, referring them to our dedicated ILS team.

4. Are parametric NatCat covers insurance, derivatives, or even Cat Bonds (ILS)?

Parametric NatCat covers can be structured as insurance contracts, derivatives or Cat Bond / ILS transactions depending on the preferences of the client, jurisdiction and transaction size. Most clients prefer parametric covers in the form of insurance, although some opt for derivative structures. For parametric transactions larger – typically above USD 100 million, a cat bond /ILS structure can be an attractive alternative.

5. What are the usual return periods of parametric NatCat covers?

Return periods of natural catastrophe events of parametric covers typically range from 20 to 200 years, with the majority written in the area of 30 to 50 years. Adverse meteorological events measured over periods with return periods of less than 20 years are considered as weather risks, rather than natural catastrophes (NatCat).

6. What is the usual risk period of a parametric NatCat cover?

Most parametric NatCat covers have a one-year risk period. However, Munich Re offers multi-year parametric covers, with risk periods typically ranging up to three years.

7. What are the benefits of a multi-year risk period for a parametric cover?

Multi-year contracts offer two key benefits: Price stability over the entire risk period (typically three to five years) and reduced administrative effort, as there is no need for annual renewal and renegotiation.

8. What is basis risk in a parametric cover?

The so-called basis risk refers to the potential difference between an insured’s actual loss and the payout triggered under a parametric cover. Historically, this mismatch was considered as a key limitation of parametric solutions. Today, however, the advances in catastrophe modelling, data analytics, and the accuracy of measured physical parameters - such as windspeed, earthquake intensities and water levels - have reduced basis risk significantly. Due to gaps in the coverage of insurance also traditional insurance entail basis risk when one thinks of non-physical damage BI or other financial losses that business or communities can sustain.

9. For which countries do you offer parametric solutions for core natural catastrophe perils (earthquake, hurricane, and tropical cyclone)?

Worldwide. Earthquakes, hurricanes, and tropical cyclones are core hazards within our standard parametric offerings.

10. For which countries do you offer parametric flood solutions, and how are they structured?

Worldwide, with tailor-made structures. Parametric flood covers are designed based on the relevant flood drivers (e.g. pluvial, fluvial, or combined), typically using extreme rainfall indices, and in some cases river gauge or sensor-based solutions.

11. For which countries are parametric hail and wildfire solutions available?

Currently, we offer parametric hail and wildfire solutions only in the United States.

How and where we work for you

Munich Re’s Parametric NatCat team serves its clients on a global basis by combining essential factors: Long-standing expertise in natural disaster risk management, years of experience in developing parametric products, profound industry expertise and in-depth knowledge of local markets.