Swiss Re covers Malawi against drought risk
http://www.insurancedaily.co.uk/2008/10/20/swiss-re-covers-malawi-against-drought-risk/
Swiss Re and the International Development Association (IDA) had entered into an agreement whereby the insurer will pay out up to US$5m should Malawi farmers suffer a reduced maize crop due to drought.
The IDA, which is part of the World Bank, is supporting the first weather-based derivative contract in Malawi.
Swiss Re’s Environmental and Commodity Markets chief Juerg Trueb explains that the deal is a prime example of risk management aimed at offsetting the financial impact of potentially catastrophic weather.
The deal is particularly important for Malawi given the predominance of agriculture in its economy, meaning that a poor harvest is a very serious issue.
The maximum payout of $5m would come into effect if maize production fell to below 10% of a historical average.
Smaller payments would occur based on a rainfall index showing the projected effect of rainfall (or lack thereof) on maize production.
This is not Swiss Re’s first foray into the sphere of weather derivatives. Four years ago it made its first such deal in India, in a move that protected some 350,000 farmers.
Today the insurer has a 30% share of the global weather risks market.
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