Swiss Re Insurance-Linked Fund Management

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Swiss Re assists in development of first Nigeria weather derivative


Reinsurance firm Swiss Re has assisted with the development and launch of the first weather derivative backed microinsurance scheme which aims to protect smallholder farmers in Nigeria from the risk of adverse weather patterns.

Swiss Re Corporate Solutions, the firms mid to large-sized corporate insurance solutions division, has worked alongside impact investment firm Doreo Partners and its agricultural franchise Babban Gona to launch a weather-linked solution for local farmers, with the protection terms linked to satellite measured weather conditions.

These innovative micro-products often require the backing of a firm with the scale of Swiss Re, as its ability to price and structure solutions backed with weather derivatives enables these low-level insurance products to be facilitated using the latest weather-index technologies while the firm can reinsure or hedge the risk using derivative tools making it possible.

In this case the insurance product protects the small holder farmer-members of the Babban Gona agricultural franchise from the risks associated with adverse weather patterns. This allows the farmers to overcome a critical barrier to the adoption of new yield-increasing technologies, such as improved seeds and fertilizer by protecting their livelihoods from the impacts of certain weather extremes.

By providing weather risk protection farmers are able to invest in their businesses more, adopting techniques which will provide them with better yield. Before protection was available the confidence to do this was lacking as weather events wiped out farmers crops entirely and no financial injection to enable them to replant and to continue their business.

“This is a monumental step for small holder farming in Nigeria. For the first time, a small holder farmer can invest with confidence in their farm, knowing that in the event of increasing risk of drought due to climate change, they are protected by some of the world’s leading insurance companies,” said Kola Masha, Managing Director, Doreo Partners.

The weather derivative underlying the insurance protection pays out based on satellite measurements of a rainfall proxy. If the proxy for rainfall hits a certain predefined level, indicating a lack of rainfall, the policies will pay out.

“I am very pleased that we are able to offer income protection for farmers in Northern Nigeria. This is a region with high unemployment, and so this work is an important contribution to growth opportunities and stability,” commented Christina Ulardic, Head Market Development Africa, Swiss Re Corporate Solutions.

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