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Developments in the Indian Weather Market Marcel Stäheli WRMA Annual Meeting Miami, 9 - 11 May 2007 Who are we? Specialities E&CM Agricultural Insurance 13 Members (NY, Zurich & Mumbai) 16 Members (worldwide) (Environmental and Commodity Markets) Weather and energy Crops Livestock Emissions Glasshouses Bloodstock ELPRO (contingent power price option) Forestry, plantations Aquaculture Focus on parametric insurance Slide 2 Focus on indemnity based insurance Able to combine traditional reinsurance with modern methods of capital markets. Indian Agricultural Production highly dependent upon Monsoon Rainfall Irrigation only 40% of cultivated area accessed by irrigation system only 20% effectively irrigated 80% depend upon rainfall Agro Sector India sustains 16% of the world’s population on 2.4% of land resource Agriculture contributes 24% of the Indian GDP Livelihood support to two-thirds of the population Slide 3 Historical Kharif Rainfall and Crop Production Deficient Rainfall Years Monsoon Rainfall % Departure from Normal Kharif Food Grain Production (% fall) 1972-73 -24% -7% 1974-75 -12% -13% 1979-80 -19% -19% 1982-83 -14% -12% 1986-87 -13% -6% 1987-88 -19% -7% 2002-03 -19% -19% Year 2003: 49% dip in July rainfall – Kharif output fell by 19%, and Agri GDP by 3.1% leading to drop in overall GDP growth * * Source: Innovative Financial Services for Rural India – Ulrich Hess, July 2003 Insured Crops Covered Crops Weather Perils Field Crops Deficit / excess rainfall Soybean, paddy, cumin, coriander, fenugreek, wheat etc. High relative humidity (RH) Horticulture Crops Oranges, grapes, apples, peach etc. Slide 4 Excessively high and low temperatures Prolonged dry spell Combination of above Indian Weather Market UNTIL TODAY over 539,000* Indian farmers have taken weather insurance MARKET PLAYERS - 8 P&C direct insurers - Currently active: 1) Agricultural Insurance Corporation of India Ltd. 2) ICICI Lombard General Insurance Company Ltd. 3) IFFCO Tokyo General Insurance Co. Ltd. - Banks expected to join after regulator signed-off on weather derivatives END USERS - Farmers - Corporates engaged in contract farming - Tea/coffee plantations - Sugar producers - Wind farms - Hydro power projects - Salt production - Bio-diesel plantations DISTRIBUTIONS CHANNELS - Banks - Insurance agents - Brokers - Co-operatives - Micro finance institutions - Kiosk - NGO’s - Self help groups * Swiss Re Estimate Slide 5 Stages Seedling Vegetative Reproductive Maturity 11-24Jun 2 weeks 25Jun-15Jul 3 weeks 16Jul-26Aug 6 weeks 27Aug-7Oct 6 weeks 8Oct-11Nov 5.5 weeks 40-60mm 50-70mm Water requirement Presowing Time Crop Calendar and Rainfall Pattern 170-190mm 180-200mm 40mm 190mm 180mm 60mm 50mm Rainfall required Slide 6 40mm Output Stages Seedling Vegetative Reproductive Maturity 11-24Jun 2 weeks 25Jun-15Jul 3 weeks 16Jul-26Aug 6 weeks 27Aug-7Oct 6 weeks 8Oct-11Nov 5.5 weeks 40-60mm 50-70mm Water requirement Presowing Time Deviation in Rainfall and Impact on Yield 170-190mm 180-200mm 40mm Loss in yield 190mm 180mm 60mm 50mm Rainfall required Slide 7 90mm 70mm Actual Rainfall recorded 40mm Output Stages Seedling Vegetative Reproductive 11-24Jun 2 weeks 25Jun-15Jul 3 weeks 16Jul-26Aug 6 weeks 27Aug-7Oct 8Oct-11Nov (Strike – actual rainfall) 6 weeks * Notional, 5.5 weeks Water requirement Presowing Time Loss Payment through Weather Insurance Maturity Payout: e.g. INR 20 / mm 40-60mm 50-70mm 170-190mm 180-200mm 40mm Retention 190mm 180mm Strike 60mm 50mm Rainfall required Slide 8 Strike 70mm 70mm 90mm 70mm Actual Rainfall recorded 40mm Loss payment Output Example of Closed Weather Programme – Term Sheet (1/2) TERMSHEET FOR WEATHER INDEX INSURANCE Crops Any crop in the district Reference Weather Station Yeotmal - IMD No. 42943 Index Aggregate rainfall during the cover phases in mm. If rainfall on a day is < 2 mm it is not counted in the aggregate rainfall If rainfall on a day is > 60 mm it is not counted in the aggregate rainfall Definition of Day 1 Calendar day in the month of June 2006 when cumulative rainfall for the month of June at reference weather station is observed >= 50 mm If above condition is not met in June, Policy invariably starts on July 1 Policy Duration Cover Phase Duration Strike (mm) < Exit (mm) < Notional (Rs / mm) Policy Limit (Rs) Phase Net R/I Premium (Rs) Slide 9 110 days I 35 days PUT 150 50 10.00 1,000 81 II 35 days 120 50 10.00 1,000 59 III 40 days - Example of Closed Weather Programme – Term Sheet (2/2) Strike (mm) > Exit (mm) > Notional (Rs / mm) Policy Limit (Rs) Phase Net R/I Premium (Rs) Combined Net R/I Premium (Rs) Combined policy limit (Rs) CALL - - 550 620 10.00 1,000 91 171 3,000 Data Source Indian Meteorological Department Settlement Date Thirty days after the data release by IMD and verified by Insurer. - The quantity of rainfall received on Day 1 is divided into two parts: Policy Activation Rainfall and Index Rainfall. Policy Activation Rainfall is the quantity of rainfall that contributes towards the requirement of first 50 mm rainfall condition and Index Rainfall is the balance rainfall of the day. Index rainfall is included in calculating the policy index. - This term sheet is tentative and subject to verification of weather data by a professional data cleaning agencies. - Premium inclusive of service tax Slide 10 Swiss Re Initiatives in the Indian Weather Market 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 36 fac R/I contracts closed; reinsured 272,590 policies Hedged Commodities 4 3 No. of Deals 2 1 Type of Com m odities 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 providers, wind farms, tea plantations, hydro power projects, sugar & salt production, various crops and vegetables, contract farming etc Slide 11 Number of Policies sold since 2004 Humidity 4,812 2% Temp/ Rain 19,415 7% Temp 46,221 17% Rainfall 202,142 74% W Ki he ln W at he (T em at (T p) em p/ R ai n) hi lli C k Br ic um in C Ki nn Ve u ge ta bl es Fe nu gr ee k An y R ic e So yb ea n G en er ic Sa lt M Se at ed er ia C l om pa ni es St ev ia G ra pe s aw R an de r ra ng e O or ri C Estimated market growth 2006 to 2007 by ~200% Ba si x( M FI ) 0 Contact Information Swiss Reinsurance Company Mythenquai 50/60 CH-8022 Zurich Marcel Stäheli Director Head Weather and Energy Underwriting Phone +41 (0)43 285 4370 E-mail [email protected] Slide 12