The World Bank and International Finance Corp. have teamed up with Aquila Energy to launch a global weather risk facility that will sell weather derivatives to companies in the emerging markets. Ulrick Hess, project officer at the IFC in Washington, said the IFC plans to supply up to USD10 million in risk capital to the facility with Aquila putting up USD20 million and a group of five reinsurance companies and banks putting up another USD10 million each. The IFC's capital will only be called upon in the event of losses. Calls to Aquila were not returned by press time.
One of the most useful parts of the partnership is being able to use the IFC's name and reputation, Hess explained. "People in Argentina know us, as do their governments."
Aquila was chosen because of its partnership-based business model. Aquila has partnerships with insurance companies, such as Mitsui Fire & Insurance, and banks, such as Macquarie, which give it a global reach and the ability to penetrate emerging markets, especially in Asia, according to Hess.
The initiative has grown out of the multilateral
agencies' plans to broker weather derivatives as a form of crop
insurance to boost agricultural yields in North
Africa (DW, 6/24). The IFC is currently looking to broker USD15 million (notional) of protection for cereal and sunflower farmers in Morocco next year and boost that to USD42 million (notional) the following year. The Moroccan farmers will pay for the protection as part of their borrowing costs on agricultural loans. Hess added that most local banks will no longer lend money without some form of insurance as it is not practical to attempt to reposes land in rural communities.
The IFC is also looking at participating in a weather securitization, according to Hess, who added, "it is just a thought." The deals would be likely structured on portfolios of property and casualty risk in Hurricane-prone areas, such as the Caribbean. He said now is a good time to be looking at structuring these products as reinsurers are contracting their portfolios. He declined further comment, as it is still only an idea.