Swiss Re has introduced an index-based insurance program for Vietnam Agribank Insurance Joint Stock Company (ABIC) to cover loans to rice farmers in up to 10 provinces in Vietnam, with the potential to extend the scheme across the country.

Under the arrangement, ABIC, the insurance arm of Agribank, will insure its rice farming clients against the inability to make loan repayments due to low yields.

ABIC will in turn transfer the risk via reinsurance to Swiss Re and the Vietnam National Reinsurance Corporation (Vina Re). Payouts will be defined by an independent ‘area-yield index’ based on data from the Vietnam’s Bureau of Statistics.

ABIC chairman and general director Nguyen Van Minh said the insurance scheme will ensure Agribank can confidently offer rice loans and use potential payouts of the parametric insurance program to mitigate the impact of credit defaults resulting from poor harvests.

“With this solution, we can also in the future continue to sustain a key sector that provides a means of livelihood to more than 50% of Vietnam’s 86 million people,” Minh said.