Olympics sponsor uses Guernsey captive to buy $120m parametric pandemic cover
A large corporation that is a sponsor of the 2024 Paris Olympics has purchased a parametric insurance coverage to protect against exposure to any restrictions enforced, postponement, or a complete cancellation of the games caused by a pandemic and used its Guernsey domiciled captive vehicle to access sources of risk capital efficiently.
Dr. Marcus Schmalbach, CEO of RYSKEX Inc., said that the parametric pandemic risk transfer arrangement was structured using the VUCA-World Risk Index (VUCAWRI), which utilises machine learning technology to bring together trusted and verifiable data which is then analysed to determine the likelihood of a major event occurring over a defined period of time.
Schmalbach highlighted that the protection buyer, a Fortune 500 French conglomerate, that had made a significant investment in marketing as a sponsor of the Paris Olympics and had also invested in specific infrastructure for the games.
The risk of the Olympic games being disrupted, postponed, or cancelled were seen as too great to not have insurance in place, so it seems a parametric solution was deemed a viable option in this case.
The risk transfer arrangement was entered into via the Guernsey based single-parent captive insurance company of the Fortune 500 French conglomerate and has a monetary risk of US $120 million.
It was designed to address the financial uncertainty a pandemic could cause, which in an extreme case could have resulted in the loss of the sponsorship and related investment made in the games.
A dual-trigger system was developed for the parametric pandemic coverage, with a first trigger being a WHO declaration of a pandemic and a second being an International Olympic Committee (IOC) announcement of a cancellation, or other disruption, to the Paris games.
The sponsor was looking for sufficient coverage for the large-scale uncertainty this presents, as well as a way to capture the potential volatility and a rapid, simple insurance claims process, Schmalbach wrote in a whitepaper on the arrangement.
The parametric insurance has a range of payout possibilities, from a full payout for a cancellation of the Olympic games by two years, to partial payouts for other scenarios, ranging from a one-year postponement to the implementation of significant restrictions that would affect the games.
“The captive management team, in collaboration with RYSKEX, played a key role in the program’s success by structuring the PRT solution, testing the VUCAWRI index, modeling potential risks and payouts, and identifying suitable risk takers,” Schmalbach explained.
Adding that, “The 2024 Paris Olympics case demonstrates the effectiveness of PRT in managing complex risks. By using objective triggers and enabling rapid claims settlement, PRT enhances the sponsor’s confidence and reduces financial uncertainties.”
Seeking coverage for capital outlays for sponsorship through insurance and risk transfer is not unusual, but this parametric risk transfer arrangement has highlighted the way that structured, verified data can be used to construct indices that parametric triggers can be designed around.
In the past we’ve seen plenty of event cancellation innovation in the parametric risk transfer market, largely focused on weather risk, but even an insurance-linked securities (ILS) solution, a cat bond that protected FIFA’s own investment against the cancellation of the 2006 World Cup, issued back in 2003.
RYSKEX’s Paris Olympics pandemic cover shows that contingent financing that can be activated and triggered on the occurrence of risks, measured with the help of parametric indices, is still attractive to those that have large capital outlays exposed.
It also provides another example use-case for how a large corporate risk transfer buyer can utilise its captive structure to efficiently interface with insurance and reinsurance markets for protection. Although, in this case, we are told that it’s possible the majority of the risk has been retained within the captive, rather than ceded to the open market.
