Swiss Re Insures Against African Drought

Swiss Re noted it had begun developing pioneering weather risk transfer instruments in low-income markets, starting in India in 2004.

According to the firm, a total of 280,000 policies have since been sold to small-scale farmers. Earlier this month, Swiss Re announced that it had provided financial protection in the case of extreme drought to three village clusters in Kenya, Mali and Ethiopia.

Re said under its new CADP program it partners with Millenium Promise, a nonprofit organization which works with rural African villages to alleviate poverty, and the International Research Institute for Climate and Society, which has pioneered climate modeling and climate risk management approaches and is part of The Earth Institute at Columbia University.

The goal of this partnership, Swiss Re said in a statement, is to develop and implement climate risk indices for all 12 clusters of Millenium Villages in Ethiopia, Ghana, Kenya, Malawi, Mali, Nigeria, Rwanda, Senegal, Tanzania and Uganda.

Based on these climate risk indices, Swiss Re said it will design financial risk transfer instruments and bring them to the commercial financial market.

Additionally, Swiss Re said it will financially support related research and risk assessment, and will engage in complementary corporate citizenship initiatives.

CADP, Swiss Re said, is open for partnerships and additional contributions to research, training or funding of risk transfer from public and private institutions are invited.

Ivo Menzinger, Swiss Re head of sustainability and emerging risk management, said, "Climate change is a fact, and some of its consequences have become inevitable. Parallel to efforts that aim at reducing emissions we have to improve resilience against changing weather conditions, particularly in emerging markets."

He said CADP will contribute to develop a risk transfer market that will "ultimately help smallholder farmers buy agricultural inputs, overcome a lack of collateral, draw upon agricultural extension services and accumulate income."

Swiss Re said that as a global reinsurer it is committed to taking a leading role in the climate debate.

The company said it identified climate change as an emerging risk some 20 years ago, and the concern has since evolved into an important component of the company's long-term risk management strategy.

Swiss Re said it has developed new products and approaches to the art of risk management in climate change such as insurance-linked securities and weather derivatives. In 2003, to demonstrate its commitment to reducing emissions, Swiss Re became the first major financial services company to launch a voluntary program to become greenhouse gas-neutral.