Global Parametrics & Hannover Re complete index-based water risk transfers

Global Parametrics has structured and backed with capital from its Natural Disaster Fund (NDF) two index triggered water risk transfer arrangements covering smallholder farmers in India and Tanzania, with reinsurance giant Hannover Re providing some of the risk capital to support the deals.

The two parametric risk transfer arrangements have been developed using Global Parametrics new Water Balance Index (WBI), which it has created to enable its partners to provide drought and excess rainfall protection to smallholder farmers in India and Tanzania.

The Water Balance Index (WBI) is “a multi-scalar meteorological index using monthly cumulative rainfall and potential evapotranspiration to estimate departure from the climatological norm. The Index utilises 40-years of daily atmospheric reanalysis data supplied by the European Centre for Medium Range Weather Forecasts (ECMWF) at a 31km resolution,” Global Parametrics explained.

The first of the two water risk transfer arrangements saw Global Parametrics structuring a solution for Luxembourg based insurtech IBISA, to provide a reinsurance-like backstop to mitigate the impact of extreme weather events and to allow them them to scale their operations in India.

IBISA, in partnership with the Development of Humane Action (DHAN) Foundation, provides parametric drought and excess rain insurance cover via mutual pools to low-income smallholder farmers in India.

Global Parametrics solution, structured as an over-the-counter derivative, will provide capacity to support the expansion of the program as IBISA seeks to potentially reach more than half-a-million smallholder farmers by 2024.

The second parametric water risk transfer arrangement saw Global Parametrics partnering with the One Acre Fund (OAF), a non-profit social enterprise which provides training and finance to smallholder farmers in East Africa.

Using the Water Balance Index (WBI) in Tanzania, OAF will be able to provide a tailored product to manage adverse impacts from drought and excess rain to its network of 70,000 maize farmers.

Should the index trigger, payments from the risk transfer arrangement will be made directly to OAF to benefit the farmers in its program with capital to forgive loans due to the impacts from this weather parameter.

The Tanzania solution is also structured as an over-the-counter derivative.

Both of the transactions are supported by capital from Global Parametrics Natural Disaster Fund (NDF), which in turn cedes 50% of the risk to global reinsurance firm Hannover Re.

Professor Jerry Skees, Director and co-founder of GP commented, “Our Water Balance Index enables us to characterise agricultural risk anywhere in the world, particularly in areas where reliable information is not available. Deploying the Index means we can now extend our footprint into India and Tanzania and provide protection for communities who need it most.”

Maria Mateo Iborra, co-founder of IBISA, also said, “Smallholder farmers are particularly exposed to extreme weather and natural hazards. We are thrilled to have GP supporting us in scaling our program in India.”