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October 2013

Munich Re Agro Insurance Info

Agriculture insurance systems attract attention throughout the world

Dear Reader,
In this issue of our newsletter, we look at the situation in Latin America as well as in our own home country, Germany. Remarkably, there is quite a lot happening in various countries' efforts to use agriculture insurance systems to cope with the risks of present-day agriculture.

Germany: Flooding again destroyed crops and pasture over extensive areas – Who will foot the bill?

September 2013. Only ten years after the last "100-year" flood, German agricultural producers must again deal with devastating losses, this time due to another "100-year" flood resulting from a series of adverse weather events in May and June 2013. This year's flooding affected 300,000 hectares, causing losses of up to €440m. As Germany has no established system for assessing flood damage in agriculture, estimating losses is difficult, and the fields affected must be considered a total loss. Furthermore, multiperil crop insurance covering flood losses is neither offered by insurers nor supported by the government. To make matters worse, since grain production in Germany and the rest of the world increased in 2013, there has been no rise in commodity prices that might otherwise have helped to compensate for the drop in production

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Farmers have been helped by public disaster aid, mainly by ad-hoc payments and subsidised liquidity loans. Yet the financial situation of individual farmers remains uncertain, particularly as their assets, which they had used as collateral to obtain liquidity loans following the last flood, are still burdened with debt. Moreover, public payments add up to only 50% of the farmers' damage at most, and it is unclear when such payments will be made.

Germany's federal government has requested reimbursements from the EU's disaster relief fund. Also, the new EU Common Agriculture Policy (CAP) allows for publicly co-financed crop insurance systems. Whereas some EU member countries allocate funds for such systems, Germany has decided in favour of direct payments with no relation to risk exposure. After the last severe loss event in 2002, there was some political movement in Germany towards implementing a pre-disaster risk management scheme, but nothing came of it. In the USA, for example, the federal government abandoned direct payments in favour of an effective transfer of agricultural risk.

Peru: Experts exchange views at the "Developing markets for insurance associated with climate phenomena" Conference

July 2013. Organised by the GIZ (German agency for international cooperation), the conference was attended by 180 experts from 14 countries, including nine Latin American nations, and featured presentations from various national and international experts and working groups. Focusing strongly on agriculture within the context of climate change, the participants discussed the dynamics of insurance marketsand examined different approaches toward promoting their development.

The participants in the conference concluded that enhancing the cooperation between the public and private sectors was the most promising strategy for developing agricultural insurance.

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Here you can also find the presentation "Institutional framework for the development of crop insurance" of Dr. Joachim Herbold from Munich Re.

Brazil: Premium subsidies – a roller coaster of governmental announcements unsettles both insurance and agribusiness industry

August 2013. Three months ago, President Dilma Rousseff and Agriculture Minister Antonio Andrade announced the agricultural budget for 2013/14, including an increase of 75% in subsidies for agriculture insurance premiums needed to insure 96,000 producers who cultivate an area totaling 10 million hectares. Up until then, the government had neither settled the 2012 premium subsidies still outstanding nor guaranteed the premium subsidies for the upcoming planting season. Only recently, the indemnification of extensive frost and floods losses demonstrated yet again the value of crop insurance. he Black Sea region, today's breadbasket, will suffer up to a 5% yield decrease in cereals by 2030, assuming a constant and comparably low productivity level.

The indemnification divided producers into two classes: the insured and the uninsured. The president of the influential Farmers' Association of Parana (FAEP), Ágide Meneguette, took action to inform the responsible persons in Brasilia about the deficiencies. His main fear is that fewer and fewer farmers will be able to afford insurance, leaving an ever increasing number unprotected.

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We hope you have enjoyed this issue of Munich Re Agro Insurance Info Worldwide,

Your Munich Re Agro team


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