Beijing makes breakthrough move in agricultural reinsurance

Swiss Re is working with the Beijing Municipal Government to provide reinsurance coverage for catastrophe risks under China's government-funded agricultural insurance scheme.

Supported by the China Insurance Regulatory Commission (CIRC), this ground-breaking agreement paves the way for furthering the agricultural reinsurance policy framework in China. This public-private partnership facilitates the sustainable development of agricultural insurance, stimulating agricultural productivity in China, amid global concern over food security.

Roman Hohl, Head Agriculture Asia-Pacific, explores the role of reinsurance for rural development in the context of the Beijing transaction.

What role does insurance play in agriculture?

Agricultural insurance plays a key role in stimulating investment in agriculture in emerging markets and supports the shift from subsistence to commercial farming. Insurance stabilises farmers' income and provides easier access to loans and input supplies which in turn leads to higher productivity. In China, the increase of food production to satisfy the demand for higher protein food (meat and dairy products) is of national importance and agricultural insurance is seen as a major contributor to rural development.

How does the agreement with the Beijing Municipal Government work?

Under the agreement, the Beijing Municipal Government will pool all the agricultural insurance business within Beijing and provide funding so these businesses can buy cover directly from the reinsurers. The beneficiaries will be the insurance companies under the government-subsidised agricultural insurance scheme in Beijing. The insurance companies will be responsible for any losses below 160% of the annual premium. Swiss Re and another reinsurer will take up the losses between 160% and 300%, while those losses over 300% will be covered by the Beijing Municipal Government’s Agricultural Catastrophe Risks Reserve. In the event of catastrophe loss, Swiss Re, as the lead reinsurer, will settle with the individual agricultural insurance companies, covering about 400,000 farming households.

What role is the Chinese government playing here?

The Chinese government has a strong commitment to build up a well functioning agriculture insurance market which is a key part of the “Three dimensional Rural Issues” that focuses on agriculture, the rural area and farmers. Based on the general guidelines of the central government, regional governments started to set up their own framework for agricultural insurance in 2007, providing subsidies for insurance premiums and sometimes grant protection for large losses to insurers. This agreement is the first major milestone in using reinsurance to support the management of catastrophe risks in agriculture for a regional government and is the first agreement of its kind in China. It marks a transition from a focus on post-agriculture disaster funding to pre-event risk management.

What is Swiss Re bringing to the agreement?

As one of the leading international reinsurers, we have broad experience of best practice in agricultural risk management and provide significant reinsurance capacity to spread the burden of catastrophe losses. Swiss Re has been active in the agriculture sector in China for some years and has a strong commitment to making public-private partnerships work. We are excited about the opportunities that are emerging to build on this agreement in agricultural insurance with other regional governments in China and look forward to again combining the broad global know-how of our experts with our strong local Swiss Re market presence.

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