Peru to expand El Niño agricultural catastrophe insurance cover

by Artemis on May 19, 2017

The Peruvian government and the Ministry of Agriculture have chosen to expand the country’s El Seguro Agrario Catastrófico (SAC), or the Agricultural Catastrophe Insurance scheme, to include five more regions, with the launch of an international tender, according to reports.

Agriculture in PeruReports in peruthisweek.com underline the recent impact of El Niño on the Peruvian agriculture sector, which led to a number of infrastructure losses and adversely impacted numerous industries, especially the country’s important agricultural sector.

In response to the high volumes of flooding caused by the El Niño weather system, many Peruvian farmers saw their crops destroyed and subsequently lost money, which, absent insurance and reinsurance market protection, reduces the social and economic stability of the Peruvian agricultural sector.

Artemis discussed SAC at the time of its launch, described as a catastrophe insurance facility for the country’s farmers, providing private risk transfer to cover 550,000 hectares of crops over eight regions, aiming to cover losses of up to around $156 million from an impending El Niño, and other weather related events.

In the event of a strong El Niño Peru can experience intense rainfall and severe flooding, so the need for risk transfer to protect against an El Niño event and other weather or climate related threats that damage crops, is essential to protecting the country’s much needed and relied upon agriculture sector.

Reports state that Peru is now looking to expand SAC for the period between July 2018 and August 2018, to cover a further five regions after the recent El Niño struck most of the North of the country.

The new regions to be included in the coverage of SAC are Tumbes, Piura, Lambayeque, La Libertad, and Ancash. This would take the number of regions covered under SAC to 13, with Huancavelica, Cusco, Apurimac, Huanuco, Cajamarca, Ayacucho, Pasco, and Puno already covered under the initial SAC programme.

According to peruthisweek.com Peru has launched an international tender to attract global insurance and reinsurance firms to develop partnerships with Peruvian companies, to provide risk analysis or underwriting expertise and support, alongside capacity.

The expansion of the SAC scheme shows how the Peruvian government is responsive to its needs for disaster risk finance driven by its exposure to El Niño and adverse weather events, and shows how effective risk transfer and reinsurance capital can be in helping local economies to recovery post-event.

Interestingly, Peru is also one of the South American countries looking to sponsor a catastrophe bond to cover earthquake risks, alongside Chile, Colombia, and Mexico, which together form the Pacific Alliance (a Latin American trade bloc). A deal that would see them leveraging the capital markets as a source of risk capital and reinsurance.

Peru is clearly aware of its exposure to a range of catastrophe events that have the potential to impact various industries, and it’s promising to see the country embark on risk transfer to minimize its financial exposure and ultimately drive economic stability and security.

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