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Exam 6 > Chev.Agri > Flashcards

Chev.Agri Flashcards

1
Q

what is GF2 (Growing Forward 2)?

A
  • a comprehensive federal - provincial -territorial framework for Canada’s agricultural sector
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2
Q

what are the 6 BRMs (business risk management) programs in GF2?

A

agri I - SIR
- agri Insurance: protects against protection loss
- agri Stability: protects against margin decline
- agri Investment: investment fund for small losses
- agri Recovery: protects against disaster
- advance payments program: low interest loans for cash flow management
- WLPIP (Western Livestock Price Insurance Program): protects against fluctuations in livestock prices

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3
Q

identify purposes of the BRMs in GF2 other than the pure insurance purposes

A
  • ensure availability and affordability of agricultural insurance to producers
  • provide risk mitigation to promote industry stability
  • support innovation and R&D in agricultural industry
  • foster competitiveness
  • enhance market development
  • ensure sustainable growth
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4
Q

identify purposes of the BRMs in GF2 for pure insurance purposes

A
  • protect producers from loss of production
  • protect producers when there is a decline in market prices, leading to a reduction in income
  • build an individual investment fund to mitigate small income losses
  • protect producers against natural disaster
  • provide loans to producers with low interest rate
  • protect against decrease in livestock value
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5
Q

how are the BRMs programs funded?

A
  • BRM1236 (WLPIP): funded by producer-provincial federal
  • BRM4: funded by provincial-federal
  • BRM5: funded by federal
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6
Q

define probable yield

A

expected yield of an agricultural product, measures coverage in yield based plans

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7
Q

define balance back factor

A

factor applied to aggregate premium to correct for individual discounts and surcharges

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8
Q

define risk splitting benefits

A

indemnity based on a subset of production for a given agricultural product

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9
Q

define reinsurance load

A

to account for reinsurance costs when the province purchases reinsurance

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10
Q

define uncertainty load or risk margin

A

a load in rates to account for limitations in data, assumptions and methods

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11
Q

define self sustainability load

A

a load in rates to recover deficits and main surplus

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12
Q

reason for uncertainty and self sustainability load

A

uncertainty load: covers future contingencies
self sustainability load: recover past deficits

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13
Q

what is the content for an actuarial certification

A

provide opinion on
- method for calculating probable yield
- method for pricing
- self sustainability of program

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14
Q

why is actuarial certification required?

A

for federal funding

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15
Q

how often is actuarial certification required?

A
  • frequency is determined using a risk based approach
  • at least every 5 years
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16
Q

what are the 2 triggers the requirement of a new certification?

A
  • significant changes in program design or methods
  • new crops
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17
Q

describe the purpose of probable yield tests

A

to prevent over insurance

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18
Q

4 key elements of Canadian agri insurance regulation

A
  • minimum deductible = 10%
  • probable yields must reflect demonstrated production capabilities to prevent over insurance
  • rates must be actuarially sound
  • actuarial certification required
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19
Q

identify the main types of agri insurance plans and provide examples of each

A
  • yield based plan: individual or collective
  • non yield based plan: weather derivative, acre based, mortality of livestock
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20
Q

when does yield based plan pay?

A

pays when individual or collective production < production guarantee for a specified agricultural product

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21
Q

define proxy crop coverage

A

when payment rate for a given crop is based on payment rate for another crop with more reliable production and price data

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22
Q

what is the coverage trigger for a non yield based, weather derivative plan?

A

when pre determined meteorological thresholds are breached regardless of actual production

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23
Q

what is the coverage trigger for a non yield based, tree mortality plan?

A

when more than a certain % of trees are destroyed by an insured peril regardless of actual production

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24
Q

what is the formula for probable yield in a yield based plan

A

average of yearly production yields

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25
what is the purpose of adjustments to historical yields?
to reflect current production capability (similar to on levelling premiums)
26
what are the triggers of adjusting historical yields?
- a change in farming and management practices - a change in insurance program design - a change in data source or data collection technique - maturity of perennials - quality variation of crop from year to year
27
what actuarial input is required regarding adjusting historical yields?
- review trends - disclose reliance on agricultural experts for other adjustments
28
stabilizing methods for probable yields methods
Alice Can Select Cool Smoothing Techniques - Average: use a long term average of historical yields - Cap: cap data to limit year over year changes - Split: split basic and excess coverage since excess coverage is more volatile - Cushion: give data outliers smaller weights when averaging to cushion their effect - Smooth: apply floors and ceilings to data points to smooth the effect of outliers - Transition: use transition rules after introducing a new yield method
29
yield based plans Production Guarantee and Liability formulas
PG = A*P*C L = A*P*C*insured unit price A = insured area P = probable yield per unit are C = coverage level %
30
non yield based plans Production Guarantee and Liability formulas
PG formula is not applicable since there is no production guarantee for non yield based plans L = number of insured units * insured unit price
31
formulas for indemnity $ for yield based plan
indem = max (0,PG-AP) *insured unit price
32
F2014Q12
33
types of weather events that are covered under non yield based plan
- excessive rainfall - drought - freeze
34
identify variables that affect compensation in non yield based plans
- number of units affected - insured price - deductible
35
what are included and excluded in rate calculations for production insurance program?
expected losses only administrative costs are share between federal and provincial government
36
production insurance program formula for premium
prem = premium rate * loss amount premium rate varies by coverage %
37
production insurance program formula for indemnity amount and rate
indemnity amount = indemnity rate * loss amount first calculate indemnity amount, then calculate indemnity rate, then feed into premium rate
38
what are the consequences of rate instability?
- fluctuations in participation - adverse selection
39
what load factors must be incorporated to arrive at the final premium rate in production insurance programs?
to get premium rate, start with indemnity rate then incorporate - uncertainty margin - balance back factors - individual discount / surcharge - reinsurance load - self sustainability load
40
what is the effect of severe loss years on rates?
indemnity goes up. indemnity rate and ss load to replenish surplus goes up premium rate goes up premium goes up
41
how are non yield based plans priced?
- same as yield based plans but with extra considerations - ex: weather derivative plans may have extra considerations like temperature thresholds
42
identify pricing consideration for weather derivative plans
- data: long term history of meteorological 气象 data vs producer data
43
identify cost share levels (refer to sharing of premium contributions)
3 cost sharing levels depending on severity of loss - comprehensive: 0-80% in the overall loss distribution - high: 80-93% - CATL 93-100%
44
identify how are costs (premiums) shared between producer/provincial/federal governments
shared according to loss level - comprehensive: ppf share costs - high: ppf share costs - cat: provincial and federal only note that administrative expenses are shared by provincial and federal government only
44
what is the federal requirement for self sustainability?
for all base & adverse scenarios: - calc 95% percentile of the fund balance at the end of the 6th year - rerun the scenario with that starting point then the program is self sustainable if deficit recovery occurs - within 15 years on average - within 25 years with 80% probablity
45
what is the basis for the self sustainability load selection?
selected target surplus level, can be expressed in different ways - $ value - % of liability dollars - multiple of premiums - percentile over a given time horizon
46
what is the source of volatility in stochastic simulations of self sustainability?
mainly the indemnity component because the probable yield and premium rate methodologies are designed to avoid large year to year variations
46
what is the basis for the self sustainability test
25 year stochastic simulation of financial position
47
what is the actuary's role regarding the self sustainability test?
the actuary should design or confirm methodology for calculating the self sustainability load
47
identify adverse scenarios relevant to self sustainability in agri insurance
- increase in liabilities - adverse claims experience - introduction of new insurance plan - deterioration in market value of investments - combination of above
48
what are the similarities and differences between agricultural self sustainability and DCAT
Similarity: - both consider base and adverse scenarios - both are forward looking to get expectation of financials in the future Diff: - agri self sustainability uses a fully stochastic simulation over a longer time horizon
49
is government reinsurance for agri insurance considered traditional reinsurance?
no, it's an optional deficit financing scheme province may finance deficits as they occur vs regularly contributing to a government reinsurance fund
50
describe the funding mechanism for government reinsurance for agricultural insurance
- provincial producer programs contribute a % of premium to provincial and federal reinsurance - amount is based on surplus position and risk profile - must self sustain for 25 years
51
what triggers government reinsurance for an agri insurance program?
- when surplus of the production insurance fund is depleted - note that indemnities net of private insurance are paid out of production insurance fund first
52
identify roles and responsibilities of the federal government in agri insurance programs
- develop guidelines for production insurance program - provide financing mechanism when programs are in deficit position
53
identify roles and responsibilities of the provincial government in agri insurance programs
- determine probable yields, premium rates - manage claims
54
identify roles and responsibilities of the producers in agri insurance programs
- pay their share of the premium - report yields
55
identify roles and responsibilities of the private insurance and reinsurance in agricultural insurance program
- private insurance: provides coverage for producer for perils not covered under government insurance (ex: fire) - reins: provides reinsurance for govt insurance
56
evaluate the government agricultural insurance program using the criteria from the government insurer study note
1) welfare or insurance? - insurance because producer pay premiums and government pay covered losses 2) efficient? - yes because government uses existing infrastructure and doesn't make a profit 3) necessary? - yes, because farmers rely on the income stability the government program provides
57
compare the different triggers for 1) actuarial certification 2) historical adjustment to probable yield 3) risk transfer test
1) - significant changes in program design or methods - new crops 2) - a change in farming or management practices - a change in insurance program design - a change in data source or data collection technique - maturity in perennials - quality variation of crop from year to year 3) - inception of contract - when contract changes significantly alters expected future cash flows
58
examples of areas where actuarial certifications are required
- agricultural insurance production programs - risk transfer analysis - valuation of reserves - rate filings
59
examples of areas where transition rules are used
agri insurance - probable yield calculation: - after a new methodology is introduced - use transition rules or stabilizing methods to prevent sudden large changes rating: - prevents individual policyholders from getting a big rate change all at once
60
examples of areas where stochastic models are used
- agri: for adverse scenarios in self sustainability mode - DCAT: when risk distribution is earsily inferred - mfad: where the cost distribution is skewed, and deterministic methods may not work well

Exam 6 (58 decks)

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