Exploring Systemic Weather Risk and the Diversification Possibilities of Agricultural Risks in China

04/2012

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Given the pace of evolution of agricultural production, the rapidly growing demand for agricultural insurance and the weather conditions observed in China, an analysis of systemic weather risk for both insurers and reinsurers active in the agricultural sector seems entirely appropriate. 

This paper provides such an analysis, in two parts. The first part gives an overview of agricultural production risk and of recent developments in agricultural insurance in China. The second part consists of an initial investigation into systemic weather risk, conducted over 17 agricultural regions in China. It focuses in particular on the possible spatial diversification of weather risks, and its results reveal a significant spatial diversification effect on a nationwide scale, although at the provincial level the aggregate weather risk remains high. 

 

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