Climate Insurance Fund (CIF)Luxembourg, June 2017

KfW Development Bank’s Role in Insurance

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Our Mandate

• As the German development bank, our objectives is help our partners to fight poverty, maintain peace, protect the environment and shape globalisation in an appropriate way.

Our Role in Insurance

• We support and finance health and climate risk insurance solutions that help to build resilience of the poor and vulnerable in developing countries.

Flagships in Climate Risk Insurance

• Macro-level: African Risk Capacity (ARC)• Index insurance against droughts for African

Union member states• Participating governments prepare

contingency plans prior to taking out insurance

• Micro-level: Climate Insurance Fund (CIF)

CIF was created by KfW on behalf of the German Government to promote insurance protection of poor and vulnerable against climate risks

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Initiators

Mandate

Facilitating the adaptation to climate change by improving access to and use of climate insurance solutions in developing countries.

Improving the resilience of poor and vulnerable households as well as micro, small and medium enterprises (MSME) to weather events.

Financing of qualified corporates along the value chain of insurance (e.g. insurers, brokers, aggregators) with main operations in Official Development Assistance (ODA) recipient countries

Set up in December 2013 by KfW on behalf of the German Ministry for Economic Cooperation and Development (BMZ).

Commencement of commercial activities in January 2015, under the German G7 presidency.

Role of BMZ and KfW in initiating and sponsoring the Climate Insurance Fund (CIF)

Target Markets

Countries eligible to receive ODA

Insurance, micro-insurance, reinsurance, brokers, either already involved or interested in developing climate insurance

BlueOrchard acts as the Fund’s manager and possesses the expertise to successfully realize the investment strategy of CIF

Founded in Geneva in 2001; manager of the first ever commercial microfinance fund

Experienced international investment team with offices on 4 continents and investments in over 70 countries totaling more than USD 3.5bn

Pioneer in private equity investment with focus on developing climate insurance in emerging markets through the Climate Insurance Fund

State-of-the-art investment process with emphasis on on-site due diligence comprising investments across the capital structure, from equity to senior debt

Strong ties with supranational investors(World Bank, development banks)

Meaningful global institutional (pension funds) and private client base

Regulated as Asset Manager by FINMA in Switzerland and authorized as AIFM by CSSF in Luxembourg

Company profile

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CIF promotes the development of climate insurance along the insurance value chain in countries eligible to receive official development assistance (ODA)

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• Individuals / farmers• Solidarity Groups• Micro- and Small

enterprises

(Re)Insurers Brokers Aggregators 1 Insured

• Distribution and expertise in rural areas

• Keen to expand product offering

• Preference for debt funding

• Connect demand and supply

• Active role in product development

• Disseminate know-how and expertise

• Take insurance risk on their balance sheet

• Develop and provide insurance products

• Generally generate cash and do not need debt

Access to distribution

Provision of growth capital (equity)

Expertise for product development (technical assistance) 2

Premium subsidies for product launch 2

Development of new risk pools

Provision of relevant and affordable products

Provision of debt capital

Protection from extreme weather events

1. Aggregators comprise microfinance institutions, cooperatives, input providers, telecom operators, etc.

2. Funded separately by KfW / BMZ but with direct benefit for the investees (Technical Assistance facility of EUR 11m, Premium Subsidy facility of EUR 6m);

The Climate Insurance Fund combines several levers to develop climate insurance solutions for the poor and vulnerable

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Private Equity Sub-Fund

Investing in insurers and brokers actively building the market for climate insurance in emerging markets, with a focus on the poor and vulnerable.

Debt Sub-Fund

Lending to financial institutions and aggregators in return for participation in the development and distribution of climate insurance, with a focus on the poor and vulnerable

Manager InvestorsPrivate & Public

Manager InvestorsPrivate & Public

Technical Assistance Facility

Selectively funding the development and realization of climate insurance solutions at different stages by the Fund’s investees on a non-profit basis.

Premium Support Facility

Selectively subsidizing the premiums of climate insurance products launched by the Fund’s investees to facilitate the achievement of critical volume.

Manager FundingBMZ

Manager FundingBMZ

Levers to develop and

promote climate

insurance

The TA facility of the Fund supports the development of climate insurance markets with a broad range of services to investees

CIF Technical Assistance (TA) Services (non-exhaustive)

Institutional Services Financial LiteracyTechnical Services

Feasibility Study Data Sourcing

Legal Services Insurance Design

Project Management Education of Investee

Corporate Governance Marketing and Distribution Support

Education of End Client

Operations Support and Platform

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Technical Assistance: CelsiusPro is a pioneer in weather risk management

Company profile

Founded in Zurich in 2008

Winner of the 2009 Swiss Insurance Innovation Award and the 2014 Australian Insurance Industry Awards

Structuring and originating tailored index products mitigating the effects of adverse weather, climate change and natural perils.

Proprietary online platform for risk modeling, pricing, execution, transaction lifecycle management and reporting

Digitalized processes to enable insurers to efficiently service clients with parametric products.

Customized solutions for multinational companies to subsistence farmers.

Data driven risk management

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Business Partners of CIF:Leading reinsurers support the fund as business partners

CIF business partners Comments

CIF establishes Reinsurance Business Partnerships with the objectives of:

– Supporting CIF business development and activities

– Helping identify and access potential investees in insurance, re-insurance or related service companies that wish to offer climate insurance products

– Scaling-up commercially viable climate insurance initiatives

– Work with CIF in establishing the fund as a relevant stakeholder in the field of climate insurance and secure international best practices

Swiss Re, Hannover Re and Munich Re have become CIF non-exclusive Reinsurance Business Partners:

– They are global reinsurance companies with a significant underwriting capacity

– Investees can benefit from their underwriting capacity but may choose their preferred reinsurer

The CIF Reinsurance Business Partners can offer to investees:

– Re/insurance underwriting capacity

– Technical assistance to build capacity for successful scaling-up

– Access to industry contacts that can play a useful role for expansion

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Challenges and Opportunities

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Finding the right partners for CIFInformation on climate insurance markets is difficult to find in some less developed markets. Most insurers are multi-line businesses, with climate insurance and smallholder farmers not a strategic priority.

Complexity of working with different stakeholdersDifferent objectives from various stakeholders (financial institutions, insurance company, regulators) need to be aligned to provide relevant and affordable insurance products to end clients

Potentially demand for insurance is large – while access is limitedLarge parts of the working population in Emerging Markets are employed in the agricultural sector (e.g. 65% in Africa) with weak protection against extreme weather events.

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5Measuring ImpactMeasuring the number of poor and vulnerable beneficiaries of climate insurance poses a challenge to some of the Fund’s investees.

Climate insurance for the poor and vulnerable can be made accessible and affordableTechnological progress and demand of existing channels for new financial products open up new opportunities for climate insurance. Rapid premium growth can be observed in some regions.

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Private Debt transaction exampleCaja Sullana

Caja Sullana began operations in 1986 and currently is the third largest CajaMunicipal in Peru (out of 12). It serves over 224,000 borrowers and 531,000 savers through a branch network of 75 offices in 12 of the 24 provinces of the country.

Company Profile

CIF Investment and TA

Climate insurance products

CIF invested a subordinated loan in March 2016.

CIF Investment Purpose: Enhance the commercialization of a crop yield insurance that Caja Sullana began to intermediate in December 2015.

TA Mandate: Training of investee staff, marketing support and education of end clients.

The Caja currently offers two products:

1. Crop insurance. It is mandatory for all agriculture linked loans and covers losses in the crop yield production caused

2. “Multi risk”, which is climate risk for MSME

Inception: 1986

Branches: 75

Employees: 2’193

Assets: $ 982mm (2016)

Peru

Recent Experience with

climate insurance

3 events affected the MFIs borrowers since inception of the insurance policy: inundation and rain (Mar 2016), drought (Dec 2016), inundation/rain (Feb 2017)

Sullana received over a 1,000 claims. Climate insurance is more than agricultural insurance.

A second phase of TA will start and be more focused on the insurance product itself. The existing product will be improved and/or consider creating a new climate insurance product to respond to the needs of Sullana’s clients.

Financial Institution

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Summary

Emerging markets economies, businesses and households are highly exposed to climate-related risks.

Insurance coverage against climate events can be made both affordable and accessible, enabling savings, investments and economic development.

Combining investments with technical assistance, the Climate Insurance Fund (CIF) creates a market for climate insurance and offers attractive returns for investors.

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The Fund’s management and partners possess the network, expertise and track record for successful implementation of the Fund’s strategy.

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B M Z a n d K f W p r e s e n t

WWW.INSURESILIENCEINVESTMENT.FUND

C O M I N G I N J U L Y

Thank you !

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