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Crop Insurance in Spring-Autumn 2011

Background

Throughout spring-summer 2011, the insurance companies signed 1,981 crop insurance contracts (750 contracts in 2010). Our database does not distinguish between the types of contracts for spring-autumn as these contracts were less standardised than the contracts providing coverage for the winter season. Normally, the insurers allowed producers to select a limited coverage (i.e. selected perils). This reduces the cost of insurance, especially if the client wishes to insure only against some predetermined risks.

Throughout spring-autumn 2011, 540,000 hectares were insured (340,000 in 2010). The total sum insured was nearly UAH 3.2 b. (UAH 1.6 b. in 2010). The total premiums amounted to UAH 108 million (UAH 57.7 million in 210). The average premium rate was 3.38%, i.e. somewhat lower than in 2010 (3.59%).

The forward grain purchase programme of the KhlibInvestBud Company in the grain market was the major factor contributing to the development of agri-insurance. All producers participating in the programme had to insure the yield with one of the three accredited companies (ASKA, Brokbuisness or Providna). Consequently, these three companies collected over 47% of all premiums in the market in spring-autumn 2011 and insured 264,000 hectares, e.g. 49% of the total acreage insured in the 2011 season. The average insurance rates of these companies were at the level of the market average rate. That may be seen as an indicator that KhlibInvestBud required the producers to have real insurance coverage (which is often not the case when crops are insured as collateral). According to the insurance companies, the average premium rate on bank pledged crops insured in spring-autumn 2011 was only 1.29%.

The insurance companies could not provide the indemnity data for the time when the data was requested, i.e. the database does not include the indemnity and loss data. These data will be collected at later stages along with the data on winter crops insured during autumn 2012.

Crop data

The producers preferred to insure winter wheat (1,091 contracts), sugar beets (234 contracts), corn (192 contracts) and winter rye (122 contracts). Fruit trees and grapes were not covered at all. It should be noted that horticulture insurance is virtually nonexistent in Ukraine. In spring 2011, very few producers purchased vegetable coverage at the rates significantly lower than the average agri-insurance rates in Ukraine. The chart below illustrates the shares of individual crops in the overall agri-insurance structure. 1 Contracts share per crop, % Winter wheat – 55% Winter rye – 6% Winter rapeseed – 2% Barley – 4% Rye – 0% Sugar beets – 12% Sunflower - 5% Soya – 3% Corn – 10% Other – 3%

The insured acreage under winter wheat was 284,000 hectares. The producers paid over UAH 44 million under the contracts insuring winter wheat for the summer season. The corn insurance contracts covered some 69,500 hectares and provided for the premiums worth UAH 19.3 million Sugar beets were insured on 55,800 hectares and the producers collected UAH 26.8 million of premiums. The insured acreage under sunflowers was 40,000 hectares (only UAH 4.7 million collected).

2 Acreage by crop, % Winter wheat – 53% Winter rye – 2% Winter rapeseed – 2% Barley – 4% Rye – 2% Sugar beets – 10% Sunflower – 7% Soya – 4% Corn – 13% Other - 3%

Premiums by crop, % Winter wheat – 41% Winter rye – 1% Winter rapeseed – 1% Barley – 3% Rye – 1% Sugar beets – 25% Sunflower – 4% Soya – 4% Corn – 18% Other – 2%

The key agri-insurance data are given in the table below.

Table: Crop insurance data by crop

Including, collateral agreement Acreage, Insured sum, Premiums, Crop Contracts s hectares UAH UAH Winter wheat 1,091 42 284,156 1,431,197,640 44,356,435 Winter barley 39 9 9,136 21,520,785 348,608 Winter rye 122 1 13,317 38,726,205 1,430,316 Winter triticale 2 2 380 1,368,360 13,478 Winter rapeseed 31 15 12,060 65,866,904 1,011,434 Wheat 6 0 1,890 9,335,331 154,280 Barley 88 1 21,078 64,027,285 3,359,356 Rye 1 0 9,854 30,765,013 1,155,223 Sugar beets 234 3 55,845 735,329,840 26,803,363 Sunflower 98 5 40,137 161,813,125 4,749,494 Rapeseed 2 0 254 1,168,146 165,877 Bea 1 0 32 70,144 905 Soya 54 1 19,615 84,895,368 3,928,492 Vegetables 1 0 11 512,050 8,193 Corn 192 4 69,490 495,640,697 19,339,792 Spring mustard 2 0 627 526,879 23,595 Tomatoes 1 0 663 18,332,454 696,633 Chick pea 2 0 22 125,104 2,551

3 Buck wheat 13 0 1,140 31,855,050 318,124 Rice 1 0 352 6,588,000 197,640 Total 1,981 83 540,057 3,199,664,378 108,063,789

The average premium rate for winter wheat was 3.1%. Sugar beets were insured at 3.65%, corn – at 3.9% and sunflowers – at 2.94%. The rapeseed insurance was most expensive – the average rate for two contracts was 14.2%, however it is hardly indicative due to the low number of contacts. In spring 2011, the tomato insurance was most expensive (UAH 1,051 per hectare). It was expensive to insure rapeseed (UAH 653/hectare), rice (UAH 561/hectare) and sugar beets (UAH 480/hectare). Other key features per crop are given in the table below.

Table: Average premium rates, average insured sums, indemnities and average rates per crop

Premium Acreage Premium Insured Average sum, Crop hectares per total, UAH sum per premium rate UAH per contracts per contract hectare hectare 26 Winter wheat 3.10% 0 40,657 156 5,037 23 Winter barley 1.62% 4 8,939 38 2,356 10 Winter rye 3.69% 9 11,724 107 2,908 19 Winter triticale 0.99% 0 6,739 35 3,600 38 Winter rapeseed 1.54% 9 32,627 84 5,462 31 Wheat 1.65% 5 25,713 82 4,939 24 Barley 5.25% 0 38,174 159 3,038 9,85 Rye 3.75% 4 1,155,223 117 3,122 23 Sugar beets 3.65% 9 114,544 480 13,167 41 Sunflower 2.94% 0 48,464 118 4,032 12 Rapeseed 14.20% 7 82,938 653 4,599 3 Bea 1.29% 2 905 28 2,192 36 Soya 4.63% 3 72,750 200 4,328 1 Vegetables 1.60% 1 8,193 745 46,550 36 Corn 3.90% 2 100,728 278 7,133 31 Spring mustard 4.48% 4 11,798 38 840 4 66 Tomatoes 3.80% 3 696,633 1051 27,660 1 Chick pea 2.04% 1 1,276 116 5,687 8 Buck wheat 1.00% 8 24,471 279 27,952 35 Rice 3.00% 2 197,640 561 18,716 27 Average 3.38% 3 54,550 200 5,925

5 Data b y region

The oblast of Poltava was the leader by the number of contracts sold in spring-autumn 2011. Three hundred eighty two contracts were signed in Poltava oblast. The insured acreage was 96,000 hectares. The total premium amounted to UAH 34 million or 32% of the total agri- insurance premiums in Ukraine. In these oblasts the producers of sugar beets, sunflowers and corn were most likely to insure.

By number of contracts, the leaders are the oblasts of Khmel’nytsk (158 contracts), Vinnytsya (146 contracts), Odessa (103 contracts), and Zhytomyr (102 contracts). In all other oblasts the number of contracts per oblast never exceeded 100.

In addition to Poltava oblast, the largest insured acreages were in the oblasts of Vinnytsya (46,800 hectares), Khmel’nytsk (37,200 hectares), Kherson (36,600 hectares) and Sumy (30,600 hectares).

The highest premiums were collected in the oblasts of Khmel’nytsk (UAH 11.6 million), Vinnytsya (UAH 6.9 million), Kirovograd (UAH 4.5 million) and Zhytomyr (UAH 4.5 million).

Table: agri-insurance by oblast

Total Oblast Contracts acreage, Sum insured, UAH Premiums, UAH hectares Crimea Autonomous Republic 57 16,530 62,490,177 2,094,670 Vinnytsya 146 46,811 395,480,909 6,880,688 Volyn 32 6,314 35,441,029 950,265 Dniepropetrovsk 76 22,873 75,646,089 1,864,920 Donetsk 60 12,224 51,997,934 1,477,373 Zhytomyr 102 18,440 109,738,929 4,467,712 Zakarpattya 5 700 5,626,795 422,145 Zaporizhzhya 26 10,965 51,435,588 1,542,322 Ivano-Frankivsk 24 4,249 28,764,906 1,075,829 Kyiv 89 15,349 96,631,725 3,349,294 Kirovograd 84 29,083 144,442,608 4,500,355 Lugansk 64 13,535 41,212,761 1,155,739 Lviv 37 22,656 114,083,087 3,745,327 Mykolaiv 82 15,485 87,389,454 3,587,329 Odessa 103 19,773 139,691,985 2,558,958 Poltava 382 96,056 749,965,702 34,164,297 Rivne 34 14,497 101,459,633 2,033,981 Sumy 84 30,645 136,901,330 3,126,327 Ternopil 68 15,883 94,081,477 3,238,702 Kharkiv 73 20,608 105,712,615 3,942,607 Kherson 56 36,576 128,827,595 4,123,570 Khmel’nytsk 158 37,320 260,929,735 11,627,662 6 Cherkassy 54 14,957 89,768,606 2,459,782 Chernivtsi 12 1,759 6,174,076 251,604 Chernigiv 73 16,771 85,769,635 3,422,333 Total 1,981 540,057 3,199,664,378 108,063,789

The average premium rate throughout 2011 spring-autumn was 3.38%. At the same time, only in four oblasts the average rate per oblast was over 4%. Thus in Zhytomyr oblast the average rate was 4.07% (4.1% in Mykolaiv oblast, 4,56% in Poltava oblast and 4.46% in Khmal’nytsk oblast). The lowest rates were applied in the oblasts of Vinnytsya (1.74%), Odesa (1.83%) and Rivne (2%).

The average contract insured 273 hectares. The average premium per acreage unit (hectare) was UAH 200. The lowest average premiums were paid in the oblasts of Dniepropetrovsk (UAH 82) and Lugansk (UAH 85). Agri-insurance was most costly in the oblasts of Poltava (UAH 356) and Khmel’nytsk (UAH 312). The table below illustrates the other major indicators. .

Table: Agri-insurance by oblast

Average Acreage, Premium per Premium per Oblast premium hectares per acreage unit, contract, UAH rate contract UAH/hectare Crimea Autonomous Republic 3.35% 290 36749 127 Vinnytsya 1.74% 321 47128 147 Volyn 2.68% 197 29696 151 Dniepropetrovsk 2.47% 301 24538 82 Donetsk 2.84% 204 24623 121 Zhytomyr 4.07% 181 43801 242 Zakarpattya 7.50% 140 84429 603 Zaporizhzhya 3.00% 422 59320 141 Ivano-Frankivsk 3.74% 177 44826 253 Kyiv 3.47% 172 37633 218 Kirovograd 3.12% 346 53576 155 Lugansk 2.80% 211 18058 85 Lviv 3.28% 612 101225 165 Mykolaiv 4.10% 189 43748 232 Odessa 1.83% 192 24844 129 Poltava 4.56% 251 89435 356 Rivne 2.00% 426 59823 140 Sumy 2.28% 365 37218 102 Ternopil 3.44% 234 47628 204 Kharkiv 3.73% 282 54008 191 Kherson 3.20% 653 73635 113 Khmel’nytsk 4.46% 236 73593 312 Cherkassy 2.74% 277 45552 164 Chernivtsi 4.08% 147 20967 143 7 Chernigiv 3.99% 230 46881 204 Average 3.38% 273 54550 200

Data by insurers

According to the data provided by the insurance companies, 13 companies insured crops and perennial plantings in spring-summer 2010. The companies UESK and HDI did not provide agri- insurance in this season.

Based on the available data, the insurers can be divided into three groups by number of contracts sold. It is an important indicator of market penetration, in particular at the regional level. As a risk management tool agri-insurance is more important for small and medium producers than for big producers and agro-holdings. Some insurers that signed few contracts yet collected considerable premium amounts are included in the second group.

The first group consists of the leader companies: Providna, UASK, Brokbusiness and PZU – Ukraine. Each of these companies sold over 100 contracts during the season.

The company Providna signed 868 contracts (44%) to insure crops on 177,000 hectares (33% of the total acreage insured in spring-autumn 2011). The company became the leader, to a large extent, due to the participation in the KhlibInvestBud grain purchase programme. The sales volumes and acreage insured by the Providna company were nearly twice as high as those of the two other leading companies (Brokbusiness and UASK).

The UASK company rates next to Providna for all major indicators except the level of premiums collected. UASK sold 470 contracts (24% of the market) to insure 106,600 hectares (20%). At the same time, this company collected the highest amount of premium – UAH 45 million or 42% of the gross premium in the sector for the season.

The company Brokbuisness signed 313 contracts (16%). The company is rated third for all other indicators. It collected UAH 15 million (14%) and insured crops on 75,000 hectares (14%).

The company PZU-Ukraine is in the first group. This company did not participate in the KhlibInvestBud programme, however sold 114 contracts (6% of all contracts in this season). The company insured over 38,000 hectares (7%).

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Contracts by company UESK – 0% ASKA-DS – 0% HDI – 0% INGO-Ukraine – 2% UPSK – 1% TAS – 2% Providna – 44% Oranta – 2% Oranta-Sich – 0% PZU – 6% UASK – 24% Universal’na – 0% ASKA – 2% Brokbusiness – 16% UNICA – 1%

Premiums by company UESK – 0% ASKA-DS – 0% HDI – 0% INGO-Ukraine – 3% UPSK – 0% TAS – 1% Providna – 32% Oranta – 1% Oranta-Sich – 0% PZU – 1% UASK – 42% Universal’na – 0% ASKA – 2% Brokbusiness – 14% UNICA – 4%

9 The first group does not include the companies ING0-Ukraine and UNICA. Both sold few contracts (43 and 16 respectively). At the same time, both companies collected significant premiums - UAH 2.9 million (ING)-Ukraine) and UAH 4.9 million (UNICA). INGO-Ukraine insured 55,000 hectares (10% of the total insured acreage). Yet we did not include this company into the leader group for the very low average portfolio rate (0.7%). The Company UNICA is in the second group for few contracts sold.

Acreage insured (hectares) by company UESK – 0% ASKA-DS – 0% HDI – 0% INGO-Ukraine – 10% UPSK – 2% TAS – 3% Providna – 33% Oranta – 3% Oranta-Sich – 0% PZU – 7% UASK – 20% Universal’na – 0% ASKA – 2% Brokbusiness – 14% UNICA – 6%

The second group consists of the following companies: INGO-Ukraine, TAS, Oranta, ASKA and UNICA. All these companies, except UNICA, sold over 30 contracts each. The company ASKA sold 53 contracts, more than any other company in this group. This company participated in the KhlibInvestBud grain purchase programme. The Company UNICA collected UAH 4.9 million, more than any other company in the group. This company seems to prefer to insure big producers and agricultural holdings. 10 Similar tendencies were observed with regard to the winter crop insurance in autumn 2010. The Company INGO-Ukraine insured 55,000 hectares, more than any other company in this group.

The third group consists of the companies that throughout 2011 spring –summer sold less than 20 contracts each: ASKO-DS, UPSK, Oranta-Sich and Universl’na. Each of these companies insured no less than 10,000 hectares. It is important to notice that three companies in this group applied the average rate less than 1%. The company Universl’na is the only exception (7.08%), however the volume of sales of this company was very modest.

Table: the insurers’ shares by a range of indicators

Total sum Contracts, insured for the Premiums collected, Acreage insured, Premium rate % group,% % % per group Market leaders 89 74 74 73 4.05% Group II 10 23 24 25 1.54% Group III 1 2 2 2 0.48%

In spring-autumn 2011, the average premium rate in this market was 3.38 %. This average rate was calculated by dividing the total premium collected by the sum insured. The mean value of the premium rate by company was 2.57%.

Importantly, in the leader group the average rate for all (except one) companies was over 3%. PZU-Ukraine was the only exception with the average portfolio rate at 2.04%.

The companies in the second group applied very different rates. For instance, the average rate for the ASKA was 3.55%, 2.99% for UNICA, 2.58% for Oranta and under 2% for the two other companies.

In the third group all companies except Universl’na applied the average rate lower than 1%. These companies concentrated primarily on insuring collaterised crops or insured crops against one or very few specific risks. The major agri-insurance indicators by company are given in the table below.

Table: Aggregated data by insurance provider for spring-autumn 2011

Total Average Sum insured, Premiums, Company Contracts acreage, premium UAH UAH hectares rate 9,538,5 83 2,1 ASKA-DS 7 66 ,026 00 0.87% 409,696,1 2, 55,2 INGO-Ukraine 43 16 853,931 77 0.70% 65,78 UPSK 16 6,531 267,147 8,507 0.41% 86,421, 958 1 TAS 41 252 ,933 4,711 1.11%

11 925,77 34, 17 Провидна 868 9,689 205,405 6,851 3.69% 38,87 1, 1 Providna 37 6,620 003,521 4,742 2.58% 2,35 Oranta-Sich 2 3,680 3,530 1,791 0.15% 82,56 1, 3 PZU-Ukraine 114 6,626 686,214 8,145 2.04% 891,29 45, 10 UASK 470 5,214 174,815 6,370 5.07% 1 Universal’na 1 250,290 17,720 03 7.08% 53,65 1, 1 ASKA 53 9,849 902,554 2,069 3.55% 471,09 15, 7 Brokbusiness 313 2,650 044,727 4,755 3.19% 162,34 4, 3 UNICA 16 7,296 862,266 4,635 2.99% 3,199,66 108, 54 Total 1,981 4,378 063,789 0,057

We could not estimate the loss ratios for spring-autumn 2011 as the insurers were not be able to submit the relevant data before the end of the year. We are planning to collect the loss data and finalise this document in the first quarter of 2012.

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