The Natural Disaster Fund (NDF) Deutschland was launched at the COP25

At the COP25, the Natural Disaster Fund (NDF) Deutschland was launched by the German Federal Ministry for Economic Co-operation and Development (BMZ), the German Development Bank KfW, Global Parametrics (GP), and leading global reinsurer Hannover Re.

The NDF Deutschland, managed by GP, has secured initial financing of €25m from KfW on behalf of the German Federal Ministry for Economic Co-operation and Development (BMZ). It targets investments in risk-transfer instruments relating to natural disasters in developing markets – regions that are disproportionately affected by extreme weather events. The vehicle follows up on and will partner with the NDF UK, which was launched in January 2018 with £25m of committed capital from DfID.

Unique in its kind and first in the market, Hannover Re, one of the largest reinsurance groups in the world, has committed $50m of matching financial capacity to the NDF. Hence, the target to capitalise the Natural Disaster Fund with roughly $200 million by 2021 is in sight, and already half of the financial capacity is available now. Moreover, this private sector contribution illustrates that the investors believe in creating sustainable financial solutions for disaster resilience in developing markets while also generating commercial returns.

Dr. Maria Flachsbarth, Parliamentary State Secretary at BMZ, commented on the fund launch: “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. While about 50 percent of disaster losses are covered by insurance in high-income countries, the corresponding proportion in poorer countries is less than five percent. The BMZ is committed to help closing this gap through a substantive contribution to the NDF”.

Hector Ibarra, CEO of GP, said at the launch, “Extreme weather and natural disasters are a key cause of an endemic poverty cycle in many developing markets and with the onset of climate change, the situation can only get worse. Global Parametrics, through its Natural Disaster Funds and commercial partnerships, is proud to champion a systemic change by providing both the innovative products and access to risk capital to organisations that directly impact the lives of those on the ground.”

Henning Ludolphs, Managing Director Retrocession & Capital Markets at Hannover Re, said, “Hannover Re’s commitment to make contributions to close the protection gap is an important element of our 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. 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.”

Following the 2018 launch of NDF UK, DfID, GP and the InsuResilience Investment Fund (IIF) supported the world’s largest non-governmental climate insurance scheme: VisionFund International’s African and Asian Resilience in Disaster Insurance Scheme (ARDIS). This programme started providing cover to farmers and small businesses in Kenya, Malawi, Mali, Zambia, Cambodia and Myanmar. Global Parametrics’ advanced climate-based data modelling verifies the climate event and triggers access to both contingent liquidity and risk capital via VisionFund’s institutions, whereas the NDF UK and the IIF provided the financial capacity. This innovative financing structure makes recovery lending scalable. VisionFund intends to extend ARDIS to all its affiliates and to open it up to other microfinance providers.

The NDF is an example of taking the efficiencies offered by use of global capital markets in reinsurance and replicating it at scale to help those in less developed and low-income regions, where risk transfer expertise and risk capital efficiency are essential for any insurance or reinsurance scheme to become viable. Hence, the NDF will play a crucial role in achieving the targets of the InsuResilience Global Partnership’s Vision 2025.

Authored by KfW Development Bank