Swiss Re to help Vietnam transfer its rice production yield risks

by Artemis on November 10, 2010

Swiss Re has announced the introduction of a new index-based insurance program which aims to protect rice farmers in Vietnam from losses they incur due to low rice yields caused by weather and natural catastrophes. The program is being implemented with Swiss Re capacity and their knowledge and expertise has helped to define the scope and structure of the program and indices used.

The program is being launched in ten provinces in Vietnam and hopes to widen to all rice producing areas in the country. ABIC, the insurance arm of Agribank, Vietnam’s agriculture bank who are the main provider of agriculture loans to farmers, will insure their rice farming clients to protect them when they can’t repay loans due to low yields caused by weather and climate. The risks then get transferred via reinsurance to Swiss Re and the Vietnam National Reinsurance Corporation (Vina Re). Payouts are defined using an independent area-yield index based on data from the Vietnam Bureau of Statistics. This means predictable payouts for farmers based on data, and hopefully quicker payouts to enable them to carry on farming.

This product should be well received and will be an attractive option for other Asian countries who rely on their rice harvests. The full press release from Swiss Re follows below.

Vietnam’s rice farmers to get loss protection if yields fall; Swiss Re and ABIC deliver a first for world’s second largest rice exporter

Rice farmers in Vietnam may worry less about losses from low yields due to natural catastrophes such as droughts, floods and typhoons. Swiss Re today announced the introduction of an index-based insurance program, a first in Southeast Asia, developed for the Vietnam Agribank Insurance Joint Stock Company (ABIC) to cover loans to rice farmers in up to10 provinces in Vietnam, with the potential to extend the scheme to the entire country.

Under the arrangement, ABIC –the insurance arm of Agribank, Vietnam’s agriculture bank and key provider of agriculture loans –will insure Agribank’s rice farming clients against the inability to make loan repayments due to low yields.

ABIC will in turn transfer the risk via reinsurance to Swiss Re and the Vietnam National Reinsurance Corporation (Vina Re). Payouts are defined by an independent “area-yield index”that is based on data from the Vietnam’s Bureau of Statistics.
Agriculture is a key sector in Vietnam, and rice is by far the most important crop. With an annual production of 39 mio tons on 7.4 mio hectares of land, Vietnam contributes 20% to the global tradable rice surplus and is the world’s second largest exporter. In this market, Agribank issued loans to 5 million rice-farming households.

“Vietnam already has a high exposure to natural perils such as floods, typhoons and droughts, and climate change might make rice harvest even more volatile in the future. The insurance scheme will ensure Agribank can confidently offer rice loans and use potential payouts of the parametric insurance program to mitigate the impact of credit defaults resulting from poor harvests. With this solution, we can also in the future continue to sustain a key sector that provides a means of livelihood to more than 50% of Vietnam’s 86 million people,” said Nguyen Van Minh, Chairman and General Director of ABIC. This is especially important considering damage in agricultural production has reached up to 5% of National GDP in the past.

“Aside from offering our capacity for at least five years, Swiss Re also provided the know-how in structuring and implementing the program. Our agriculture experts conducted field visits to Vietnam to understand local rice farming practices and loan mechanisms, and to assess agriculture production and the exposure to natural perils,” said Pham Xuan Thai, Vice President, Client Markets at Swiss Re.

“Countries in Southeast Asia with similar conditions to Vietnam will find this product very interesting and we believe that our solution is flexible enough to be tailored to the specific needs of these markets,” said Roman Hohl, Head Agriculture Asia-Pacific at Swiss Re.

“We appreciate Swiss Re’s expertise in establishing the area-yield index product which is an important step in Vietnam’s efforts to introduce sustainable risk management frameworks for key sectors, chief among them the agriculture industry ,” said Dang The Vinh, Deputy CEO of Vina Re, Vietnam’s leading reinsurer and Swiss Re’s strategic partner.

Today’s announcement is further demonstration that Swiss Re’s agricultural risk expertise is making inroads into Asia. In July 2009, Swiss Re entered into an agreement with the Beijing Municipal Government to provide reinsurance coverage for catastrophe risks under Beijing’s government-funded agricultural insurance scheme.

Swiss Re has also set up a dedicated agriculture team in Asia since August 2010 to support the growth of this line of business in the region.

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