2. Massive gap between economic and insured losses Note: Loss amounts indexed to 2009 Source: Swiss Re, sigma No 2/2010 Natural catastrophe losses 1980-2009, in USD billion
Following a severe drought, Malawi would receive a payout from the World Bank. The payout is based on an index, designed to reflect effect of the drought on the country’s maize production The contract was structured as a put option on a maize index. Malawi will receive the payout if the maize production in the country, as measured by the index, falls 10% below the historical average. The payout will be proportional to the effects of the drought up to a maximum level. The index links rainfall and production, with rain precipitation being the only variable.