The reinsurance market has seen an increase in risk capacity from dedicated parametric underwriters and capital providers, according to reinsurance broker Gallagher Re, who outlined that as traditional reinsurance pricing begins to soften, parametric solutions remain a “competitive option” offering cedants a practical addition to their volatility protection toolkit.
The broker noted that 2025 marked a turning point for the global reinsurance sector, as capacity has been ample, and risk-adjusted pricing decreasing from relatively high levels.
“On 1/1/2026, many buyers prioritized price reductions, and in major markets, risk-adjusted pricing was down 10% to 20% on average. Aggregate capacity was more plentiful, but reinsurers remained highly selective in their deployment of frequency- exposed products. This means insurers are still vulnerable to losses, such as hailstorms and derechos in the US and floods, supercell windstorms, and wildfires in Europe and elsewhere in the world,” the paper explains.
“Occurrence-based excess of loss capacity is available at economic prices for some of these perils, but not all. Parametric protection, therefore, continues to be a valuable alternative or complement to traditional reinsurance.”
As parametric protection continues to gain momentum across the market, Gallagher Re observes that the space is also experiencing a period of innovation.
One key area that is seeing development is the increasing willingness of underwriters to set triggers based on modeled losses. This flexible approach ultimately combines elements of the parametric approach with the conventional by bringing the recovery amount closer in line with an insurer’s expected losses.
“This more sophisticated form of parametric reinsurance has several advantages for cedants. Most have invested heavily in understanding the nuances of specific vendor models, and some have developed their own models. Either way, these models are used to fine-tune risk appetites, support capital modeling, assess specific loss scenarios and shape reinsurance structuring strategies. Therefore, there is a clear synergy to using the same model for parametric reinsurance settlements,” Gallagher Re’s paper explained.
However, as model sophistication continues to increase, their complexity also grows, the broker cautions.
“It is important that reinsurers have faith in the chosen model, since in practice they are reinsuring its output, rather than the actual loss of an event. It is imperative to foster reinsurers’ confidence in the selected models, so the expertise of a parametric broker with strong analytical capabilities is essential,” Gallagher Re added.
Antoine Bavandi, Global Head of Public Sector and Parametric Solutions, Gallagher Re, commented: “Modeled loss solutions settle on proxy losses derived from local impact and vulnerability assumptions, aligning better with insurers’ modeling and reserving than other parametric reinsurance alternatives.”
Moreover, Gallagher Re indicates that parametric reinsurance has gained traction in the market primarily because the value of recoveries is predetermined.
Risk carriers are aware of their net loss as soon as an insured event takes place. The absence of loss uncertainty eliminates the issue of trapped capital, addressing a challenge inherent in other types of reinsurance and retrocession. The nearly immediate assessment renders parametric structures attractive to capacity providers, while investors are drawn to the clarity they offer.
These factors also make parametric risk investment opportunities attractive to the capital markets.
On the evolving structure of parametric solutions Gallagher Re said, “These innovations all add to the capacity supply but also to the market’s sophistication and appetite. So too does the increasing interest and understanding of capital-markets investors, who are attracted not just by the swift and easy resolution of parametric contracts but also by their transparency and the returns they’ve delivered so far.
“In short, capital providers like parametric. For cedants, that can open doors to new backers and fresh capacity.”
Gallagher Re also stresses that a combination of falling rates and the easing of exclusions in direct and facultative property markets have led some parametric insurers to shift both their focus and capacity towards reinsurance.
“Increasingly sizable parametric portfolios in the primary market have increased the need for reinsurance treaties and back-to-back capacity arrangements. Together these factors have pushed parametric reinsurance capacity allocations to their highest totals ever,” the broker explained.
Gian Semadeni, Parametric Solutions Lead, Gallagher Re said: “Capacity providers favor parametric structures for their transparency and the absence of trapped capital. This has fueled growth in specialist parametric MGAs/carriers and greater specialization within global reinsurers.”
Innovations and fresh capacity have helped increase the overall appeal of parametric solutions for many insurers. Nevertheless, Gallagher Re observes that some insurers might choose to remain with traditional indemnity products, which have demonstrated their effectiveness and reliability over many years.
To assist in determining which option is more suitable for volatility protection, the broker advises that cedants should evaluate the significance they place on: safeguarding against losses from particular perils, minimizing short-term profitability fluctuations, ensuring prompt liquidity following a significant loss, and depending on clear reinsurance frameworks to provide certainty after an event.
Kavit Khagram, Parametric and Public Sector Broker, Gallagher Re added: “Major reinsurers now offer parametric products, which fit well within broader reinsurance strategies. Revisiting program design is prudent, as modeled loss covers are becoming mainstream and can improve program economics.”
To conclude, Gallagher Re affirms that demand for parametric reinsurance continues to increase, but notes that the pace of the rise is tempered by the sliding price of conventional reinsurance. However, with new capacity keen to build a book, buyers have a clear opportunity to negotiate favourable terms.
“That makes exploring parametric reinsurance an essential agenda item for renewals. It could be particularly advantageous for cedants who see a correlation between almost any specific peril and their bottom line,” Gallagher Re added.
Concluding: “Parametric reinsurance, once regarded as a niche alternative, is now firmly in the mainstream – and a practical addition to the volatility protection toolkit.”
