Weather derivatives help fulfil Millennium Promise
Reinsurer Swiss Re has structured a weather derivatives deal to help lessen the effects of drought on African farmers for the Millennium Promise Alliance (MPA), a charity that aims to end extreme poverty worldwide by 2025.
Juerg Trueb, Zürich-based head of environmental and commodity markets at Swiss Re, said the transaction aims to alleviate the financial stress placed on the organisation by drought. It is the first time a weather derivatives deal has been designed to complement the work of a charity such as the MPA.The deal involves three individual trades designed to hedge the MPA against the risk of drought affecting farmers in Kenya, Mali and Ethiopia. They are structured as one- and two-month put options on local normalised difference vegetation indexes (NDVIs), which have been specifically tailored by the Earth Institute at New York’s Columbia University. The local NDVIs indicate the presence of green vegetation in the three areas and will be assessed using a combination of weather and satellite data. It is hoped they will provide a good proxy for drought affecting farmers in the villages of Sauri in Kenya, Tiby in Mali and Koraro in Ethiopia.
Swiss Re said about 150,000 people in total would benefit from the coverage purchased by the MPA. The three trades comprise $2 million in notional value, at roughly $650,000 each.
“[It] is an important step in our attempt to adapt and deploy advanced risk management and financial market instruments for the benefit of agriculture in emerging markets,” remarked Trueb. He said the firm would continue to look for ways to use weather derivatives technology, which is more commonly employed by the US energy sector, to benefit non-government organisations and smallholders in emerging markets.
The deal echoes a similar transaction carried out by Swiss Re and the United Nations’ World Food Programme in 2005 (See: A forecast for change).
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Energy
Chartis Energy50
The latest iteration of Chartis’ Energy50 ranking
Energy trade surveillance solutions 2023: market and vendor landscape
The market for energy trading surveillance solutions, though small, is expanding as specialist vendors emerge, catering to diverse geographies and market specifics. These vendors, which originate from various sectors, contribute further to the market’s…
Achieving net zero with carbon offsets: best practices and what to avoid
A survey by Risk.net and ION Commodities found that firms are wary of using carbon offsets in their net-zero strategies. While this is understandable, given the reputational risk of many offset projects, it is likely to be extremely difficult and more…
Chartis Energy50 2023
The latest iteration of Chartis' Energy50 2023 ranking and report considers the key issues in today’s energy space, and assesses the vendors operating within it
ION Commodities: spotlight on risk management trends
Energy Risk Software Rankings and awards winner’s interview: ION Commodities
Lacima’s models stand the test of major risk events
Lacima’s consistent approach between trading and risk has allowed it to dominate the enterprise risk software analytics and metrics categories for nearly a decade
2021 brings big changes to the carbon market landscape
ZE PowerGroup Inc. explores how newly launched emissions trading systems, recently established task forces, upcoming initiatives and the new US President, Joe Biden, and his administration can further the drive towards tackling the climate crisis
How energy firms can keep up with the pace of digital change
In this webinar, a panel discusses what organisations should keep in mind as they embark on their digitalisation journey, the challenges of which they need to be aware to be aware and what is next on the horizon
Most read
- Top 10 operational risks for 2024
- Regulators’ FRTB estimates based on faulty premise – industry study
- As FCMs dwindle, regulators fear systemic risk