Swiss Re Insurance-Linked Fund Management

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Emerging market agricultural insurance premiums set to grow fourfold by 2025


The latest sigma report published by reinsurer Swiss Re discusses the issue of agricultural insurance and reinsurance in emerging markets and suggests that premiums are set to grow fourfold over the next decade or so. Currently the emerging economies of the world make up around 22% of global agricultural insurance premiums, at $5.2 billion, with China and India contributing 62% of that. Globally, between 2005 and 2011 agricultural insurance premiums grew almost 20% per year.

That growth figure is interesting and Swiss Re’s report shares some date on the growth of the global agricultural insurance market. In 2005, global agricultural insurance premiums were $8 billion. That had grown to an estimated $23.5 billion in 2011. However penetration rates of agricultural insurance remain incredibly low, the global agricultural insurance penetration rate was estimated at 0.83% in 2011, emerging markets penetration rate was just 0.23% and even the U.S., which you might think of as a mature agricultural insurance market only had an insurance penetration rate of 7.15%. These numbers clearly show the opportunity for insurers and reinsurers to profit by helping these numbers grow.

Estimated agricultural insurance premiums worldwide, 2005 and 2011

Estimated agricultural insurance premiums worldwide, 2005 and 2011

Swiss Re believe that emerging market agricultural insurance penetration will continue to grow at an impressive 7% to 10% annually up to 2025. As long as government policies remain supportive, economic growth remains stable and insurers and reinsurers continue to innovate, Swiss Re estimate that emerging market agricultural insurance premiums could reach between $14 billion and $19 billion by 2025.

Reinsurance has a big role to play in enabling the growth of the agricultural insurance market and cites examples such as catastrophe pools which help governments protect against widespread agricultural losses, public-private risk transfer or sharing partnerships, alternative reinsurance arrangements and what they term meso-level index-based reinsurance facilities such as MiCRO in Haiti.

As the premiums grow over the coming years the international reinsurance markets, and potentially capital market backed collateralized players, will find opportunities opening up within the agricultural sector where perhaps it was not profitable to look before. Alternative risk transfer solutions have been proven to be of benefit within the agricultural sector and given the weather and catastrophe prone nature of farming they will likely continue to be relevant in years to come.

“Tapping the full power of agricultural insurance in emerging markets requires a lot: proactive and enabling government policies, supportive infrastructure, innovative products, cost-effective business models, new distribution channels, and advanced technology. Much of this can be achieved by partnering with insurers,” said Amit Kalra, a co-author of the sigma study.

Meanwhile, the U.S. farming community are facing another year of record losses, with estimates suggesting that 2012 will see claims reaching over $20 billion. For crop insurers it is the worst underwriting year in over 25 years, according to A.M. Best. Best said that $20 billion to $30 billion of claims were filed for the 2012 agricultural underwriting year in the U.S. Claims paid so far on 2012 losses are over $11.6 billion according to the U.S. Department of Agriculture, with many expecting that number to reach $20 billion.

With much of the U.S. crop losses underwritten by government support through the crop insurance programme it has to be considered whether the private reinsurance market may be better at pricing this risk and providing innovative covers for insurers active in the market.

Agricultural insurance is a growing sector and one which is likely to receive increasing attention from reinsurers and collateralized markets in the future, both due to the increasing premiums and potential to get involved as well as the growing exposures and potential for losses which make robust reinsurance all the more important.

Swiss Re’s sigma report looks at agricultural insurance as a way to increase food security for those in emerging markets, a very real and tangible benefit of expanding the market, you can access the full report via its website: ‘Partnering for food security in emerging markets‘.

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