1. Rashad Ahmadov, Ph.D CEO, Azerbaijan Industrial Insurance Company 2.7.15 – Azerbaijan International Insurance Forum

2. Executive Summary Azerbaijani Agri-Insurance is growing rapidly with profit offering opportunities for local and international markets Azeri government is supporting agriculture financing and insurance There are major best-practices around the world which can be implemented for further exploitation of the opportunity

3. Agricultural Production in Azerbaijan Decrease in crop compensated by animal products, slow growth in total B AZN Total Agr. Production CAGR -2,4% CAGR +2,5% CAGR +0,2% Source: Ministry of Agriculture Azerbaijan

4. Agricultural corporations overtaking the dominance of individual farmers o Big investors are entering into agriculture business to exploit opportunities. Individuals struggle compete. There is no established insurance pool in the market o Unlike Turkey or other benchmarked countries there is no established pool (eg. Turkey-Tarsim) Purchasing Insurance is compulsory if any financing is involved Insurance capacity is provided thru facultative reinsurance Loss adjustment is made by third parties due to lack of resources Quick Snapshot on the Agri-Industry Decrease in crop compensated by animal products, slow growth in total Key ObservationsFinancial Support Government and financial institutions has provided following support Concessional Loans 14.8 M AZN State Aid (2007 Fig) 20.1 M AZN

5. Regulation states that purchaser will be supported when obtaining agricultural insurance o Although not compulsory, government financially supports agriculture insurance buyers Agricultural Insurance covers Crops, Animals, related equipment, etc Included covers are triggered in case of Fire, Flood, Hail, Lightning, Storm and etc. Legislation on Agriculture – Insurance Government has issued legislation to protect agriculture investors Key Observations

6. Insurance contract must be issued as per legislation Insurance risk, terms and conditions must be as per legislation Minimum half of the premium must be paid by the insured to get financial aid from the government Insurance rate must be under government-determined rate Insured must provide relevant documents demonstrating ownership Legislation on Agriculture – Financial Aid Certain terms must be achieved to get financial aid from Government Terms for Financial Aid

7. Agr. Animal Insurance performance over time An. Ins. Has grow 125% CAGR outperforming most of other insurance LoB Agriculture (Animal) Insurance Performance 2011-2014 Despite growth, LR is lowest of all times K AZN

8. 4% Loss Ratio 13% 83% 69% Agr. Crop Insurance performance over time Crop. Ins. Slowed down in the recent period with a LR avg. 42% Agriculture (Crop) Insurance Performance 2011-2014 K AZN

9. Agri-Insurance is a relatively risky line of business due to its nature (high PML) Not easy to apply and obtain both financial aid and insurance cover due to lack of know-how of stakeholders Lack of local Underwriting skills Shortage of experts and loss adjusters, hindering courage of Insurance companies to write risk Level of know-how in farming, hardening taking precautions to avoid probable risks Extended risk exposure due to late harvesting Current drawbacks on Agri-Insurance Key Observations

10. Why do we need a structured Agriculture Insurance Market? Comprehensive offering of Insurance (like in every other industry) automatically adds value and brings certain standards Example 1: Farmers have to clear the land from salt to get insurance otherwise firms decline their request of cover Example 2: Vaccination of herds are required before insurance policy starts Insurance (due to the security being provided) will enable both farmers and corporations to invest and create value from agriculture which will result as positive balance in countries economy

11. Global Practices in Agriculture Insurance Examples from the World Developed and developing countries with significant Agriculture ratio on GDP tend to cover their risks via Risk Pools Insurance companies do not share the risk of the created risk pool. They act as insurance agency and only benefit from the sales Governance and management of the risk-pool is done by a single unit (mostly appointed by the government) Although reinsurance covers the pool with high limits, extra- limits are provided by the State itself

12. Suggestions How to move forward Government shall promote agriculture insurance by providing more financial support General Agri-Insurance Conditions shall be improved by benchmarking other best-in-class practices around the world Additional risks and covers shall be inserted and some exclusions to be taken out, which will result in comprehensive protection to both farmers and corporations. Creation of a nation-wide risk pool can be setup Insurance must be compulsory for farms who gets financial aid

13. Thank you for your attention