ICAR-Conference 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. Pool of Insurance companies (Agroseguro) Ministry of Agriculture, Fisheries and Food Farmers ENESA Regional governments Reinsurance Consortium CCS Ministry of Economy Farmer Unions and Cooperatives 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. 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. Insurance Solutions – Eastern Europe 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. Farm A Farm B Farm C Farm D 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 /publicsharing

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 people’s 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 insured’s 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 world’s leading and most diversified reinsurer … a proven expert in risk and capital management … a pioneer and leader in capital market solutions 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 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)

22. Swiss Re Centre for Global Dialogue, Zurich The “Gherkin”, London A presence on every continent 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