Global Parametrics structures index-based water risk solutions

Global Parametrics (GP) has structured two risk transfer solutions using its new Water Balance Index (WBI), to enable partners to provide drought and excess rainfall protection for smallholder farmers in India and Tanzania. The WBI is a meteorological index using monthly cumulative rainfall and potential evapotranspiration to estimate departure from the climatological norm.

In the first of the two programs, GP has structured a risk-transfer solution for Luxembourg Insurtech IBISA providing them with a backstop that will mitigate the impact of extreme weather events allowing them to scale their operations in India. IBISA’s program, founded in partnership with the Development of Humane Action (DHAN) Foundation, utilizes IBISA’s technology platform to facilitate the provision of parametric drought and excess rain coverage via mutual pools to low-income smallholder farmers. The program targets 5,000 smallholder farmers in the Tamil Nadu and Andhra Pradesh regions. GP’s solution will enable the program to scale and potentially reach more than half-a-million smallholder farmers by 2024.

In the second of the two programs, GP has partnered with One Acre Fund (OAF), a non-profit social enterprise that provides training and finance to smallholder farmers in East Africa.

The program will make use of the WBI in Tanzania to provide OAF with 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 will be made directly to OAF who will use the capital for loan forgiveness to the farmers across impacted sites.

Both solutions in India and Tanzania are structured as an over-the-counter derivative and are backed by GP’s Natural Disaster Fund (NDF). Through its partnership with Hannover Re, the NDF cedes 50% of the risk, bringing the global reinsurer into the transaction.