Climate Corporation to be acquired by Monsanto for around $1 billion

by Artemis on October 3, 2013

A technology focused weather insurance firm that Artemis first covered in 2008 has been purchased by agricultural giant Monsanto for around $1 billion. The Climate Corporation, formerly Weatherbill, has grown from an online weather insurance provider into a major player in crop insurance.

Monsanto Company announced that it has signed a definitive agreement to acquire The Climate Corporation for a cash purchase price of approximately $930 million, although according to a report from technology blog Techcrunch the actual sale price may be closer to $1.1 billion due to part of the price being an employee retention plan.

Monsanto hopes the acquisition will combine The Climate Corporation’s expertise in agriculture analytics and risk-management with it’s R&D capabilities, to give farmers access to more information about the many factors that affect the success of their crops.

The Climate Corporation has achieved significant success with its technology and big data approach to weather risk insurance. The firm began life offering a range of niche weather risk transfer products, such as rain protection for golf courses and snow day protection for businesses, but focused in on crop weather insurance cover as it understood where demand volume was likely to come from.

When The Climate Corporation launched as Weatherbill it was reinsured through Nephila Capital via one of its weather risk funds. Part of this reinsurance involved some use of weather hedging as a way for the then Weatherbill to ensure it could pay claims, we understand. Now the policies are reinsured by Swiss Re, however we’re not sure whether alternative hedging instruments are still used or whether this is straight reinsurance protection.

The Climate Corporation is a prime example of taking alternative risk transfer techniques, such as weather hedging, applying a bucket-load of technology and scientific rigour, to create an insurance product which results in a billion dollar business.

The acquisition does raise questions for the re/insurance market. Has the insurance and reinsurance industry let part of its future slip through its hands by allowing The Climate Corporation to be sold to an entity not in the sector? Would The Climate Corporation not have been a very good fit for a major global insurer or reinsurer, who could have expanded its reach while leveraging its technology? Acquiring Climate Corporation could have been a very good hedge against the impact of alternative capital for a traditional re/insurance market player.

Perhaps. It will be interesting to see what Monsanto actually does with the firm and how farmers react to a business which already sells them seeds also now selling them weather protection for their crops. Judging from the press release on the acqusition we will likely see The Climate Corporation offer new services and data to farmers as well as its insurance offering in the future.

Monsanto wants to take The Climate Corporations weather insurance products global and according to reports has ambitious growth targets for the acquired firm. We could easily see Monsanto packaging its existing products, such as seeds, with a weather insurance policy designed specifically for the farmers needs. This could be a very effective way of rolling out these crop weather policies in developing nations and bundling of weather index insurance with seeds has been done before at a microinsurance level.

What would be really interesting to see in the future, especially if global coverage is achieved, is a Climate Corporation sponsored crop risk catastrophe bond. As the firm grows, and takes on ever more weather risk for farmers both in the U.S. and around the globe, its needs for reinsurance protection will grow too and the capital markets may prove a suitable source of risk capital.

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