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UK government invests £25M in natural catastrophe hedge fund

The U.K. government's Department for International Development, or DFID, has made a 20-year, £25 million investment in a natural disaster hedge fund, Natural Disaster Fund, Reuters reported, citing a spokeswoman for DFID.

The hedge fund, which is managed by Global Parametrics Holding Company Ltd, aims to raise around £143 million for developing states to access climate risk insurance, the Feb. 23 report said, noting that the G7 countries, which include the U.K., want to address the lack of access to insurance in the developing world, aiming, by 2020 to insure an additional 400 million people for losses in the event of natural disasters.

A 2017 DFID report said insurance could cover as much as $6.8 billion of natural disaster losses if more insurance structures were used, including so-called "parametric" structures that allow insurance payments to be triggered by predetermined factors such as increased water height rather than wait for insurers to calculate the loss, the newswire wrote.

Reuters added that German development bank KfW may also invest in the hedge fund as investors turn to so-called insurance-linked securities, or ILS, like catastrophe bonds due to high returns. Stefan Hirche, a project manager for financial sector development at KfW, reportedly said the bank is "considering a direct investment" although the amount has not yet been decided.

The development bank's Insuresilience Investment Fund and DFID also financed a combined £3 million to Global Parametric's set up, Hirche added.

Global Parametrics and World Vision's microfinance unit provide climate insurance for up to four million people in six countries in Africa and Asia, according to the newswire.