Transcript India windex 2007

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%
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Estimated market growth 2006 to 2007 by
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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