1. Insurance options in facilitating risk management in agriculture
Reinhard Kuschke Agriculture Underwriter Swiss Re
2009 AFRACA Integrated Risk Management Expert Meeting

2. Swiss Re History Swiss Reinsurance Company Ltd
Swiss Re is a leading and highly diversified global reinsurer. The company operates through offices in more than 25 countries. Founded in Zurich, Switzerland, in 1863, Swiss Re offers financial services products that enable risk-taking essential to enterprise and progress. The company’s traditional reinsurance products and related services for property and casualty, as well as the life and health business are complemented by insurance-based corporate finance solutions and supplementary services for comprehensive risk management.

3. Presentation overview
Swiss Re Agro
Intention of insurance
Insurance products
Traditional, re-innovated, parametric products
Micro insurance
Reinsurer’s perspective
Swiss Re position in Africa

4. Swiss Re Agro background
Swiss Re Agro Team formally established in 1991
Comprises of 15 Underwriters
Physical presence in the Americas, Europe and Africa
Geographical penetration globally
To advise and support the agricultural market
Underwrite on both a facultative and treaty basis
Global 2008 Agro Premium: USD 440 million

5. Swiss Re Africa background
Swiss Re Africa premium production dominated by the South African market
Mainly Crop Hail and MPCI business written in South Africa
Rest of Africa balanced business

6. Swiss Re Africa background
Premium distribution per category

7. Intention of insurance programmes
Risk management option by transferring risk
Loan collateral
Provides stability for long-term business plans
Mitigation of farm level non-recovery risk
Macro level – support towards national disaster plans

8. Agricultural value chain risk management participants wide of insurers
Farmers
Traders
Consumer
Processors
Banks/Investors
Input suppliers
Government
Reinsurer
Agro insurer

9. Insurance products Two types of insurance cover
Traditional indemnity based cover
Covers losses due to one or more perils
Most common are named-peril and multi-peril crop insurance
Well established globally
Parametric
Protection provided against correlated risks such as extreme weather events
Growing awareness

10. Traditional insurance products
Multi Peril Crop Insurance (MPCI)
Yield shortfall product
Grouped systemic perils
May affect broad geographical area
Can present excessive losses
Loss determined when yield is harvested
Requires detailed UW, risk evaluation, continuous monitoring
Places a heavy burden on the insurance infrastructure
Asymmetrical information and adverse selection
Guarantee levels typically between 50 to 70%
MPCI policies suited for perils whose individual contributions difficult to measure and impact over period of time

11. Traditional insurance products
Named peril crop insurance
Damage based product
Nominated perils
Localized occurrence
Accumulation of losses tend not to overwhelm capital reserves
Loss adjustment based on physical and visible damage
Requires fair knowledge of crop production
Cover available for most field and horticulture crop, floriculture and as specialised form forestry

12. Re-innovating and tailoring of traditional insurance products
Benchmark products
Based on the MPCI product
Applied on micro-level
Field sizes varying between 0,5 and 3 ha
Farmers Cooperative Union as insured and individual farmers populating the schedule
Farmers grouped geographically with at least one field selected as benchmark site
Underwriting and loss assessment based on benchmark

13. Re-innovating and tailoring of traditional insurance products
Mauritius
Currently operational
Mauritian Government agreed to subsidize premium from 2009
Increased uptake anticipated
Ethiopia
Pilot launched in 2007
Scaled up to include a second Farmers Co-operative Union in 2008
Micro-financing via Farmers Co-operative Union drives insurance need

14. Parametric insurance products
Provides protection against correlated risks
An index is selected that closely correlate with actual losses
Based on historical patterns, be objective and easily observable
Mainly two types of triggers:
Meteorological or weather events
Area based yield triggers

15. Parametric insurance products
Affinity
Eliminates moral hazard
Immune to adverse selection
Reduces transactional cost
Restriction
Basis Risk – the mismatch between amount resulting from the trigger and the actual loss

16. Micro insurance
Micro Insurance is defined as the provision of insurance to the low-income base
Frequently in conjunction with a micro-finance loan
Agricultural micro insurance mainly covers crop (dominated by MPCI) and livestock

17. Micro insurance Micro Insurance feasibility requirements
Cheap and lesser complex
Compulsory participation
Selling to groups
Distribution through entities like agricultural co-operatives
Government support

18. From a reinsurer’s perspective
Long-term view
Government support in legislation, regulation, premium
Market maturity in UW capability, technical expertise, insurance acceptance by agricultural community
Well developed insurance infrastructure
Sound underlying risk analysis
Well developed business plans
Supportive towards the pioneering spirit

19. Swiss Re’s position in Africa
recognises that the bulk of the African livelihood depends on Agriculture as major constituent of the continental GDP
further recognises the vulnerability of the continent’s agriculture to climate shocks
provides capacity for the African Agricultural insurance market
is supporting and pioneering innovative small-scale risk transfer schemes

20. Swiss Re’s position in Africa
strategise towards geographical and segment diversification with expansion into Africa as a key priority
aims at establishing long-term business programmes

21. Thank You