La Nina ends but El Nino begins: impacts on agriculture and insurance sector

Extreme weather phenomena, such as droughts, floods and forest fires, continue to generate unexpected losses for the balance sheets of insurers and reinsurers around the world. Even worse, hopes of a respite in unstable weather this year are threatened because there is a possibility that the departure of La Nina, after three years of action, will be accompanied by the return of El Nino in the second half of the year.

La Nina usually produces more rain in northeastern Brazil and drought in the south of the country. El Nino does the opposite, causing excessive rain and floods in the south and worsening drought conditions in the northeast. Looking at its history, El Nino leads to good harvests in southern Brazil, boosting agribusiness, while La Nina harms productivity. In February of this year, 235 municipalities in the state of Rio Grande do Sul declared a state of emergency due to drought and high temperatures.

Effects on agriculture and insurance

And what does this have to do with the insurance sector? Everything. Rural insurance is a good metric of agricultural losses caused by extreme weather. The National Confederation of Insurers (CNseg) reports that claims paid out to farmers exceeded R$10.5 billion in 2022, up 47.1% from 2021. Brazil’s South region accounted for two of the three states with the highest losses in 2022: Paraná (R$3.3 billion) and Rio Grande do Sul (R$3.2 billion). São Paulo, in the Southeast region, came third, with R$1.3 billion of rural insurance claims last year.

Due to this topic’s repercussions, debate on the consequences of extreme weather is part of the 38th Western Hemisphere Insurance Conference, called FIDES Rio 2023. One of its eight thematic areas will be “Climate Change: Risk Mitigation and Development of New Solutions.” This international event will bring together representatives of private insurance organizations from 20 Latin American countries, plus the United States and Spain, in Rio de Janeiro, from September 24 to 26, 2023.

La Nina intensifies drought

Murilo Machado Lopes, a meteorologist at Santa Maria Federal University in the state of Rio Grande do Sul and a member of the university’s Meteorology Group, explains that the main factor responsible for the severe drought in southern Brazil is low rainfall, which remained less than expected throughout the last quarter of 2022. “When it does rain, it is very irregular. Some places receive some rain while others don’t get any. This leads to drought conditions,” he says in an interview published in Santa Maria Federal University’s Arco journal.

He adds that the drought experienced in the last three years in the region was intensified by La Nina. This natural phenomenon causes the Pacific Ocean’s waters to cool, leading to significant changes in precipitation and temperature patterns. La Nina directly causes stronger winds, moving the surface of the water.

Accurate and useful information for society

Since 2012, Santa Maria Federal University has been producing a monthly climate bulletin with detailed information about precipitation, temperature and other weather phenomena in Rio Grande do Sul. The goal is to provide more accurate information about the region’s context. This information is useful for various sectors of society, especially agriculture and the environment.

El Nino is deemed to have arrived when the surface waters of the Equatorial Pacific become warmer than average and east winds blow weaker than normal in the region. El Nino occurs every three to five years. All Latin American countries should prepare for significant changes caused by this phenomenon. Initially, it is believed that the start of El Nino will affect the coast of Peru and Ecuador in the early fall.