The Brazilian president Luiz Inacio Lula da Silva has signed into law a bill which will allow the creation of a catastrophe fund designed to protect the rural sector.
The federal government will invest up to 4b reais ($2.27b) into the catastrophe fund through bonds, half during the first year of the funds implementation. The fund is being set up as a public-private partnership and will supplement the coverage provided by insurers and reinsurers for disasters such as droughts, severe frosts and excessive rains.
The area of Brazil the fund will cover is roughly 35m hectares and represents 56% of the acreage of grains, fruit, sugar cane, forestry and vegetables in Brazil today. Today only 10% of that area is covered by insurance. Within ten years the value of crops covered by the fund is expected to rise to 50b reais.
Brazil hopes the establishment of the fund will help to attract other insurers and reinsurers to the rural and farming sector. The fund is to be managed by an offshoot of government controlled reinsurer IRB-Brasil Re.
Creation of this fund is going to benefit farmers and rural people in Brazil. It is hoped that establishment of the fund encourages insurers to the area who are willing to offer weather index-insurance and microinsurance products as they are proven to work in areas such as this.