Corporate Solutions Increased production volatility and impact across the entire Agribusiness Supply Chain Bernard Belk, Global Head Food & Agriculture Global Grain, Geneva, 12-14 November 2013
Agenda 1 2 3 Swiss Re at a glance Impact of climate change on agricultural production Agri supply chain & risk transfer solution example 2
Swiss Re Group at a glance Swiss Re is a leading and highly diversified global re/insurer, founded in Zurich (Switzerland) in 1863 Headquarters, Zurich Toronto Swiss Re has credit rating of AA- by Standard & Poor's and A1 by Moody's Singapore These traditional reinsurance products are complemented by Swiss Re Corporate Solutions' global insurance capabilities for large corporate risks The Gherkin, London Park Ave Plaza, New York Munich Dubai Key Statistics FY2011 USD bn FY2012 USD bn Total assets: 225.9 215.7 Total liabilities: 194.6 181.7 Shareholders' equity: 29.6 34.0 Premium earned: 21.3 24.6 Net income: 2.6 4.2 3
Impact of climate change on agricultural production - Number of heat waves increased in last decade Frequency distribution of European ([35ºN, 70ºN], [25ºW, 40ºE]) summer land temperature anomalies (ºC, relative to the 1970-99 ) for the 1500-2010 period (vertical lines). The five warmest and coldest summers are highlighted. Grey bars represent the distribution for the 1500-2002 period with a Gaussian fit in black. 5 hottest summers in last decade. Source: The Hot Summer of 2010: Redrawing the Temperature Record Map of Europe, David Barriopedro et al, Science, March 2011 Running decadal frequency of extreme summers, defined as those with temperature above the 95th percentile of the 1500-2002 distribution. A 10-yr smoothing is applied. Dotted line shows the 95th percentile of the distribution of maximum decadal values that would be expected by random chance. 4
Impact of climate change on agricultural production - Recent examples of weather impact 2009 Argentina Drought Soybeans 35% Crop Shortfall 2010 Russia Drought Grains 40% Crop Shortfall 2010 Australia Floods (E), Drought (W) Grains 40% Crop Shortfall 2011 Mexico Drought Corn 30~40% Crop Shortfall 2012 USA Drought (MW) Corn, Soybeans 20% Crop Shortfall 2012 Brazil Drought (N.E.) Corn, Cotton, Sugar Cane ~40% Crop Shortfall 5
Risks are multiple along the supply chain and can affect many players Insurance provides comfort and credit enhancement in the value chain Input suppliers Production Inland trading Inland logistics International trading International logistics Grain processors Seeds Fertilisers Plant protection Machineries Corporate farming Cooperatives Greenhouse producers Inland traders Marketing boards Road Rail Storage Trading co's Marketing boards Elevators Ocean freight Other service providers Millers Crushers Industrial grain users Properly structured cover provides credit enhancement to the operation
Crop Shortfall (CSF) hedge for agro-industries 30% Country Region Crop Pre-season Expected Market Production (Mt) Insured : Crushing Company Ltda 15'000'000 Brasil Parana Soybeans 15'000'000 PARANA Brazil Market Share Crushing Company Ltda Expected Origination (Mt) Crushing Margin (USD) 30% 30% 4'500'000 10 Total Marging at Risk (USD) Post-Season Market's production Actual Market Production Client's Market Share Actual Market Volume Loss in % of the Expected Market Production 45'000'000 45'000'000 10'500'000 30% Margin fluctuations due to throughput's volatility are covered Origination based on 30% Market Share (Mt) Crushing shortfall (Mt) Loss Payment Calculation (USD) Crushing Marging Loss (USD) 1'350'000 13'500'000 Deductible 10% 4'500'000 Policy Limit 25% 11'250'000 Loss Payment (USD) 9'000'000 3'150'000 1'350'000 7
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