A new and innovative parametric structure is allowing shrimp farms in Sri Lanka to protect themselves against multiple weather risks not covered by traditional insurance
The problem
Shrimp farming is associated with a diverse range of risks and uncertainties, most prominently the exposure to weather risks across coastal regions where farms are traditionally located.
This posed a problem for Taprobane Seafood Group, Sri Lanka’s largest seafood company.
The organisation needed to meet stringent conditions to secure US$15 million in project financing from Dutch entrepreneurial development bank FMO.
Taprobane plans to use the funding to rehabilitate abandoned farms owned by the company and by third-party growers, as well as to invest in new farms, circular tanks, hatcheries, and a new processing facility.
To get the deal, the firm needed to tackle its weather-related exposures, but traditional insurance solutions were not available.
How they solved it
To safeguard Taprobane against extreme weather vulnerabilities and unwind the bottlenecks constraining the injection of much-needed capital, WTW structured a new parametric insurance solution.
The parametric covers four key weather risks: earthquakes, typhoons, excess rainfall and heat stress.
This is Asia’s first 4-peril parametric insurance, marking a crucial turning point in the region’s aquaculture development.
With the parametric insurance solution, Taprobane was able to secure the loan to develop sustainable shrimp farming and provide gainful employment to vulnerable communities locally.
“Amidst challenging market conditions, the parametric structure has provided the much-needed insurance protection when no traditional products were available.”
This is in turn enabling the growth of aquaculture in Asia and easing the ongoing food security concerns.
It will also help to support the employment of local employees that are made up predominantly of underprivileged women, including war widows, throughout the northern and northwestern provinces of the country.
In addition to financial support, FMO has provided technical assistance to help Taprobane achieve the Aquaculture Stewardship Council (ASC) certification, which recognises companies for their responsible seafood farming practices.
Pieternel Boogaard, director of agribusiness, Food, and Water at FMO said, “Amidst challenging market conditions, the parametric structure has provided the much-needed insurance protection when no traditional products were available.
”This significantly reduces the credit risk associated with the project financing, enabling FMO to play a key role in scaling local shrimp farms production, driving sustainability and economic development among some of Asia’s most vulnerable communities.”
”This signifies an urgent need for innovative insurance and financing tools to better protect businesses.”
Marc Paasch, Global Head of Alternative Risk Transfer Solutions at WTW said: “In the face of climate change, the growing susceptibility to natural catastrophes across many Asian markets could mean that food producers based in at-risk locations can suffer adverse impact, affecting entire societies. This signifies an urgent need for innovative insurance and financing tools to better protect businesses.”
Richard Zhang, Head of Alternative Risk Transfer Solutions, Asia at WTW added, “Using innovative risk analytics to underpin this bespoke parametric structure, WTW has demonstrated how we can play a critical role in ensuring that companies like Taprobane received the needed financing and insurance to protect their businesses.
”This will open the door for more sustainable seafood farming and mitigate the effects and impacts caused by climate change, which has been a challenge increasingly faced by local farms in Asia. Our unique solution will be critical to unlock the growth of aquaculture and meet the increasing food demand in the region.”
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