Agricultural Programs Flashcards
Provide 6 crop insurance programs
- AgriInsurance
- AgriStability
- AgriInvest
- AgriRecovery
- Advance Payments Program
- Western Livestock Price Insurance Program
Briefly describe AgriInsurance Program? How is the program funded?
Protect against production losses
• Stabilize producer’s revenue by minimizing impact of natural hazards, hail, flood
• Guaranteeing a predetermined level of production
- Cost-shared: Producers (40%), Prov (24%), Fed (36%)
- Admin expenses shared: Prov (40%), Fed (60%)
Briefly describe AgriStability program? How is the program funded?
Protect against large declines in production margin
• Help producers manage large prod margin declines
• Payment = 0.7[(RefMargin0.7) - ActualMargin], max 3M
• Apply after recovering from other mechanism (such AgriInsurance)
• Funding: Prov (40%), Fed (60%)
Provide Drivers of declines in annual production margin, which leads to payment under AgriStability program
- Low commodity prices
- High input costs
- Production losses
Briefly describe AgriInvest program?
How is the program funded?
Build an individual investment fund to mitigate small income losses
• Allow producers to accumulate fund that can be used to manage income shortfalls or make investments to manage farm risks
• Producers can deposit up to 100% of their allowable net sales each year
• Receive a gov deposit of up to 1% (max 15K)
• Funding: Prov (40%), Fed (60%)
Briefly describe AgriRecovery program?
How is the program funded?
Protect against extraordinary costs to recover from disaster events (pest, disease, weather-related)
• Help producers recovering from extraordinary events
• Extraordinary costs related expense necessary to resume operations following the disaster
• Funding: Prov (40%), Fed (60%)
Briefly describe Advance Payments program?
How is the program funded?
Provide low-interest loans to help with CF management
• Access to short-term low-interest loans to improve CF management
• Up to 50% of estimated value of their agricultural production, max 400K
• Funded by federal
Briefly describe Western Livestock Price Insurance program?
How is the program funded?
Protect against fluctuations in market value of livestock
• Pilot launched in 2014
• Help livestock producers protect themselves against unexpected price declines
• Payment is triggered when price decline relative to pre-determined expected price (concept of put options)
- Premiums funded by producers
- Admin and impl expenses: Prov (40%), Fed (60%)
Define the Balance-Back Factor in the context of Agricultural insurance
Factor applied to premium rates designed to correct the overall premium collected for the discounts and surcharges given to individual producers
AgriInsurance requires actuarial certifications based on Canada’s federal legislation. An actuary must render an opinion on the following for all provincial production insurance programs
- Probable yield methodologies used to derive insured exposure for yield-based plan
- Premium rate methodologies to fund insurance program
- Self-sustainability of insurance program
Briefly describe self-sustainability actuarial certification?
- Assess the sustainability of the insurance prog based on stochastic simulation of financial position over 25 yrs
- Must be able to recover from severe loss scenarios to meet fed self-sustainability requirement
- Resembles a DCAT over a longer time horizon
List Key elements dof the Canada Production Insurance Regulation
- Coverage level may not exceed 90% of probable yield (producer must retain min 10% deductible)
- Probable yields must accurately reflect prod capability and prov must submit that it do not result in over-ins
- Premiums rates must be actuarially sound and all elements of insurance plans that have costs implications
- Probable yield methodologies, premium rate methodologies and assessments of self-sustainability must be certified by an actuary
- If prov do not sent 3 actuarial certifications, fed may reduce its premium contribution
Contrast individual yield and collective yield, and proxy crop coverage programs for AgriInsurance
- Individual: Payment when individual producer’s prod falls below its prod guarantee
- Collective: Payment to a producer when collective prod for a group of producer falls below prod guarantee
- Proxy crop cov: Payment rate for a given crop is based on payment rate of another crop with more reliable prod and price data
Briefly describe Types of non-yield-based plans for AgriInsurance
- Weather derivative plans: Indemnity when pre-determined meteorological thresholds are triggered, regardless of producer’s actual prod
- Other plans (acre-based compensation horticulture, perennial plan): Indemnity if more than x% of all insured trees are destroyed by an insured peril
Provide adjustments that should be made to historical probable yield to reflect current production
- Changes in farming
- Changes in insurance program
- Trends in technology or genetic improvement
- Variations in mix of insureds
Probable yield must be responsive but stable.
Provide 4 mitigating techniques to ensure stability of results
- Long-term average
- Cushioning: Lower weight to outliers
- Smoothing: Floors and ceiling applied to historical yield
- Capping
Provide and briefly describe Optional Benefits that may be included in the insurance program
- Quality loss protection: Against decreases in quality
- Reseeding benefits: Compensate for costs to reseed a crop (if enough time to reseed)
- Unseeded acreage benefits: Coverage when crops remain unseeded due to excessive moisture
- Hail spot coverage
- Emergency works benefits: Compensation for cost to mitigate further damage
In AgriInsurance, what would happen to the premium if the coverage level would be decrease from 70% to 60%?
- Premium = Liability * Premium Rate
- Liability = expected prod value * coverage level
If coverage level decreases, premium will decrease as well. Logically, is coverage level is higher, there is a higher probability that prod falls below coverage level, hence premium should be higher
Provide the components that must be incorporated to arrive at a final premium rate for AgriInsurance
- Expected indemnity rate (ratio of indemnity/liability)
- Uncertainty margin
- Balance-back factor
- Discount/surcharges
- Self-sustainability load
- Re load
Provide adjustments that should be made to indemnity rates used as a basis for premium rate methodology
- Current probable yield methodologies
- Programs conditions
- Trends
- Rate coverage level
- Variations in mix of insureds
Premium rates must be responsive but stable.
Provide 4 mitigating techniques to ensure stability of results
- Long-term average
- Splitting indemnity rates into basic and excess (xs more volatile)
- Transition rule
- capping
Provide an briefly describe adverse scenarios that should be contemplated to assess self-sustainability
- TIncrease in liabilities
- Decrease in liabilities
- Adverse claims xp
- Introduction of new major insurance plans
- Deterioration in the market value of investments
