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ICARConference 14. October 2008

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Title: ICARConference 14. October 2008


1
ICAR-Conference 14. October 2008
Peter Hoppler Director Public Sector
2
Introduction
  • The following slides show some examples of
    solutions in respect of protection for the
    agricultural sector in Europe.
  • However each country needs a tailor made solution
    being adjusted to the needs and the structure and
    the history/traditions of the agricultural
    sector.
  • The future lies in a clear separation of tasks
    between private and public bodies being regulated
    in the relevant laws but at the same time
    requires a tight cooperation.
  • Agricultural risk management is a topic that
    requires responsibility from all stakeholders
    the farmers, the insurance sector and the state

3
Agenda
  • Insurance Solutions in Europe
  • Case Romania
  • Weather and Agriculture
  • Swiss Re at a glance

4
Insurance Solutions in Europe
  • FRANCE
  • Fonds National de Garantie des Calamités Agricol
    (FNGCA) provides coverage for noninsurable risks.
  • Financed by farmers and by the public budget
    (50). Contribution collected by taxes levied on
    premiums paid.
  • FNGCA subsidizes a small part of insurance
    premiums on selected insurance products.
  • If natural disaster is officially declared,
    idemnities are paid out to the farmers that 1)
    bought insurance on at least one insurable risk
    and 2) that suffered losses above a defined
    threshold.

source Agro insurance Europe EU Commission full
report
5
Insurance Solutions in Europe
  • SPAIN
  • Private-Public-Partnership involving
  • Agency of the Ministry of Agriculture, Fisheries
    and Food (Entidad Estatal de Seguros Agrarios,
    ENESA)
  • Pool of sixty private insurance companies
    (Agroseguro)
  • Consortium for Insurance Compensation (Consorcio
    de Compensación de Seguros, CCS
  • Goals
  • universal coverage
  • insure all agricultural risks
  • provide income stabilization
  • Involvement of farmers in product design

source Swiss Re, sigma Report 1/2007
6
Insurance Solutions in Europe
2)
How it works
3)
1)
4)
5)
International Reinsurance Market
source In the style of, Swiss Re, sigma Report
1/2007
7
Insurance Solutions Eastern Europe
  • CZECH REPUBLIC
  • In the Czech Republic insurable risks are
    supposed to be covered by the private sector.
  • Since 2004, the Support and Guarantee Fund for
    Farmers and Forestry (PGRLF) has offered premium
    subsidies for both crop and farm animal insurance.
  • SLOVENIA
  • Ad-hoc measures provided by the government for
    extraordinary disasters (draught, hail and
    frost).
  • 2006 National programme for insurance premium
    subsidies for crop producers. Initiation of a
    systematic PPP in agricultural risk management.

source Agro insurance Europe EU Commission full
report.
8
Agenda
  • Insurance Solutions in Europe
  • Case Romania
  • Weather and Agriculture
  • Swiss Re at a glance

9
Case Romania - Current situation
  • Law 381/2002 stipulates that farmers get
    indemnification payments from the government for
    drought, frost, floods (provided they have a hail
    insurance policy from a local insurer)
  • The government indemnifies in excess of 30 of
    the individual sum insured
  • Fiscal policy and annual household budgets
    contain a considerable uncertainty as no
    indemnification payments are budgeted.
  • In case of a declared calamity, government is in
    need of quick payouts and thus is pushed to
    divert funds or raise debt.

10
Case Romania - Scheme in place
claims to the government
government declares emergency
Farm A
natural catastrophe event
indemnification by government via local insurers
Farm B
Farm C
Farm D
unexpected and non-budgeted expenses arise in the
household budget
Euro mn
year
11
Case Romania - Prospects and outlook
  • 7 major insurance companies offer hail policies.
  • Average premium of 3 4 is charged.
  • Current premium volume of 18 20mn.
  • Market penetration approx. 20.
  • Potential annual agriculture loss for the
    government 40
    50mn.
  • Premium market potential 100mn.
  • Strong incentives from EU and increasing food
    prices.

source all Swiss Re estimates
12
Case Romania - Potential solution
Claim A
Reinsurance
Reinsurance compensation financed byannual
premium
B
C
threshold
D
Government deductibles
E
Reinsurance
Euro mn
Governmentdeductibles
year
13
Case Romania - Benefits
  • predictable cost (premium)
  • reduced and smoothened loss burden (loss sharing)
  • additional government funds available for
    disaster risk relief

current situation
future approach
gross lossto the government
private /public sharing
14
Case Romania - Pre-Conditions
  • declaration of a natural calamity and
    corresponding indemnification follow scientific
    criteria, e.g.
  • water level at specific locations (flood)
  • hydrological deficit (drought) measured via
    national weather service considering temperature,
    humidity, rainfall
  • temperature (winter frost)
  • data is measured by national weather service
  • threshold values/indices define if a natural
    calamity will be declared or not
  • technical infrastructure needed
  • weather stations data
  • georeferencing, satellite imaging agri data
  • agri extension loss assessment services

15
Agenda
  • Insurance Solutions in Europe
  • Case Romania
  • Weather and Agriculture
  • Swiss Re at a glance

16
Weather and agro risks
  • Weather irregularities often cause substantial
    damage to life and property, and the ecological
    basis of life
  • Damages from droughts and floods are rising.
  • Climate change will aggravate weather related
    damages
  • Solutions Benefits
  • Coping with adverse financial consequences will
    be crucial
  • Ex-ante risk management as a substitute for, or
    complementary element to, ex-post financing
  • Predictable funding can protect vulnerable
    peoples livelihoods with timely and appropriate
    interventions

17
Benefits of weather solutions
  • To farmers
  • Insures debt services exposure against
    catastrophic events and maintains
    creditworthiness
  • Smoothes income swings over time
  • Builds up savings and collateral over time
  • To banks/MFIs
  • Secures lending and reduces default rates
  • Improves collateral
  • Can increase lending amounts and savings in rural
    areas
  • To governments
  • Relief to financial budget in case of
    catastrophic events
  • Strengthening of political stability/favour of
    population

18
Swiss Re significantly supported development of
Indian weather insurance market as a first mover
  • Background information
  • The following crops have been covered Orange,
    Coriander, Salt, Stevia, Grapes, Rice, Soybean,
    Fenugreek, Cumin, Cotton, Coffee, Guar, Chilli,
    Brick Kiln, Wheat
  • Most policies cover precipitation, temperature or
    a combination thereof
  • First deal in 2004 with Basix (microfinance
    institution) for Castor and Groundnut crop in
    Mehbubnagar, Andhra Pradesh against deficit
    rainfall covering 1 500 farmers
  • Since then 44 reinsurance contracts closed
    providing coverage for 320,000 insured
  • Offers a viable alternative to the traditional
    crop insurance market and has the potential to
    extend beyond the agriculture sector up into the
    corporate end-user market
  • Currently working on solutions for Agro Input
    companies, Wind Farms, Tea Plantations, hydro
    power projects, Sugar Production, Salt
    Production, various crops and vegetables,
    contract farming etc

19
Traditional agricultural insurance products
  • Traditional products are indemnity based, i.e. a
    professional loss adjustment, following agreed
    rules (manual) is made at the insureds
    location.
  • The following types of business are covered (main
    covers and perils)
  • Crops yield reduction due to hail, drought,
    flood, storm, excessive rainfall, frost. Quality
    and prices covers exist in certain markets.
  • Forestry loss of timber due to Fire and storm,
    extensions for snow pressure in nordic countries.
  • Livestock/Bloodstock mortality/governmental
    ordered slaughter (following preagreed rules)
    due to natural perils, accident, FLEXA, diseases.
  • Aquaculture mortality and equipment losses due
    to weather perils (storm), collision, diseases,
    jellyfish, predators, algae bloom.
  • Greenhouses loss of construction and crops due
    to hail, storm, fire.

20
Agenda
  • Insurance Solutions in Europe
  • Case Romania
  • Weather and Agriculture
  • Swiss Re at a glance

21
Swiss Re is a global financial services firm with
a long history of success
Swiss Re is a financial services firm with
144 years of experience the worlds leading and
most diversified reinsurer a proven expert in
risk and capital management a pioneer and
leader in capital market solutions
  • Recent Awards
  • Best Global Reinsurer (Reactions 2007)
  • Top-10 Green Giant (Fortune Magazine, 2007)
  • Top-50 Low Carbon Pioneers (CNBC, 2007)
  • Insurance Borrower of the Year (Euromoney, 2007)
  • 1 Capital Raising of the Year (Reactions, 2006)
  • Quick Facts (31 Dec 2007)
  • Revenues CHF 42.8 bn
  • Net income CHF 4.2 bn
  • Total investments CHF 228 bn
  • Market cap CHF 29.8 bn
  • 11,000 employees
  • 90 offices in 25 countries
  • Headquarters in Zurich, Switzerland

22
The nature of our business requires true global
cooperation
  • Our clients come from all over the world
  • Our clients include all leading insurers, many
    global Fortune 500 companies, who rely on us for
    comprehensive risk solutions, as well as
    governments and recipients of microinsurance in
    emerging markets
  • and to serve them better we must be global, so
    we are!
  • To ensure the best solutions for our clients,
    every employee is empowered to call upon any
    other unit from all around the world to tap into
    its expertise and build a global team.

Asia11
Europe 1)42
Americas47
Geographic splitPremiums (2007)
1) incl. Middle East and Africa
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