Towards a working crop insurance market : an integrated strategy of systemic risk management.

Summary Yield losses due to climate are positively correlated. This goes against the principles of insurance and exposes the insurer to financial risks that he cannot bear alone. Reinsurers themselves may be overwhelmed by the sums involved. The financial markets, on the other hand, have the required financial capacity and the diversifying effect of climate risks could interest investors. A systemic risk management strategy consisting of isolating the correlated part of the return risk and transferring it to the financial markets via catastrophe bonds is analyzed in three points. First, pricing models isolating the systemic part of the risk are presented. Second, the low correlation of an agricultural bond is demonstrated, as well as its high returns, confirming its potential for investors. Finally, the evolution of the market value of companies issuing catastrophe bonds is studied. Overall, no impact is detected. In detail, repeated issuance favors the increase of the issuer's value, and large issuance favors the decrease. Index insurance is used as a support for the study. Based on return proxies rather than actual returns, they provide access to comprehensive and reliable databases. This work contributes to the limited literature on agricultural risks and their transfer to financial markets. It provides insurers with an alternative risk transfer strategy and opens the way to innovative investment tools.