Hedge Fund Strategy Built on Catastrophes Taps Hot New Trend (2)

One of the most successful hedge fund strategies of recent years — insurance-linked securities — is latching on to an old idea whose popularity is suddenly soaring.

Parametric insurance, where policyholders get quick payouts if weather-related metrics are met, used to be the preserve of small businesses and farmers in developing countries. Now, it’s a rapidly growing market luring large corporations across the rich world.

Sebastien Piguet, co-founder and chief insurance officer at Descartes Underwriting, says parametric models are filling a gap left by other types of insurance policies. That’s as climate change and more frequent extreme weather ...