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Developments in the Indian Weather Market

Developments in the Indian Weather Market. Marcel Stäheli WRMA Annual Meeting Miami, 9 - 11 May 2007. Who are we?. Specialities. E&CM (Environmental and Commodity Markets) 13 Members (NY, Zurich & Mumbai). Agricultural Insurance 16 Members (worldwide). Crops Glasshouses

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Developments in the Indian Weather Market

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  1. Developments in the Indian Weather Market Marcel Stäheli WRMA Annual Meeting Miami, 9 - 11 May 2007

  2. Who are we? Specialities E&CM(Environmental and Commodity Markets) 13 Members (NY, Zurich & Mumbai) Agricultural Insurance 16 Members (worldwide) • Crops • Glasshouses • Forestry, plantations • Weather and energy • Emissions • ELPRO (contingent power price option) • Livestock • Bloodstock • Aquaculture Focus on parametric insurance Focus on indemnity based insurance Able to combine traditional reinsurance with modern methods of capital markets.

  3. Indian Agricultural Production highly dependent upon Monsoon Rainfall Irrigation • only 40% of cultivated area accessed byirrigation system • only 20% effectively irrigated • 80% depend uponrainfall • 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 Historical Kharif Rainfall and Crop Production 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

  4. Insured Crops Covered Crops Weather Perils Deficit / excess rainfall High relative humidity (RH) Excessively high and low temperatures Prolonged dry spell Combination of above Field Crops Soybean, paddy, cumin, coriander, fenugreek, wheat etc. Horticulture Crops Oranges, grapes, apples, peach etc.

  5. 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 - Wind farms - Corporates engaged in contract farming - Hydro power projects- Tea/coffee plantations - Salt production- Sugar producers - Bio-diesel plantations DISTRIBUTIONS - Banks - Micro finance institutions CHANNELS - Insurance agents - Kiosk- Brokers - NGO’s- Co-operatives - Self help groups * Swiss Re Estimate

  6. Stages Presowing Reproductive Maturity Seedling Vegetative 11-24Jun 25Jun-15Jul 27Aug-7Oct 16Jul-26Aug 8Oct-11Nov Time 2 weeks 3 weeks 6 weeks 6 weeks 5.5 weeks 190mm 180mm 40-60mm 50-70mm 170-190mm 180-200mm 40mm Water requirement 60mm 40mm 50mm Output Rainfall required Crop Calendar and Rainfall Pattern

  7. Stages Presowing Reproductive Maturity Seedling Vegetative 11-24Jun 25Jun-15Jul 27Aug-7Oct 16Jul-26Aug 8Oct-11Nov Time 2 weeks 3 weeks 6 weeks 6 weeks 5.5 weeks 190mm 180mm Loss in yield 40-60mm 50-70mm 170-190mm 180-200mm 40mm Water requirement 90mm 70mm 60mm 40mm 50mm Output Rainfall required Actual Rainfall recorded Deviation in Rainfall and Impact on Yield

  8. Payout: (Strike – actual rainfall) * Notional, e.g. INR 20 / mm Stages Presowing Reproductive Maturity Seedling Vegetative 11-24Jun 25Jun-15Jul 27Aug-7Oct 16Jul-26Aug 8Oct-11Nov Time 2 weeks 3 weeks 6 weeks 6 weeks 5.5 weeks 190mm 180mm Retention 40-60mm 50-70mm 170-190mm 180-200mm 40mm Water requirement 70mm 90mm 70mm 70mm 60mm 40mm 50mm Strike Strike Output Rainfall required Actual Rainfall recorded Loss payment Loss Payment through Weather Insurance

  9. Example of Closed Weather Programme – Term Sheet (1/2)

  10. Example of Closed Weather Programme – Term Sheet (2/2)

  11. 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 • Estimated market growth 2006 to 2007 by ~200% • 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

  12. 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 M_Staeheli@swissre.com

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