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Exam 6C - F2022 > Chev.Agric > Flashcards

Chev.Agric Flashcards

1
Q

What is the Chev.Agric reading about?

A

It is about something called GF2 (Growing Forward 2)

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2
Q

What is GF2?

A

A comprehensive federal-provincial-territorial framework for Canada’s agricultural sector

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3
Q

What are the 6 BRM programs?

A
  1. Agricultural Insurance
  2. Agricultural Stability
  3. Agricultural Investment
  4. Agricultural Recovery
  5. Advanced Payments Program
  6. Western Livestock Price Insurance Program
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4
Q

What is the most important of the 6 BRM programs discussed in this paper?

A

Agricultural (Production) Insurance

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5
Q

Describe the agricultural insurance program and its funding.

A

Protects against production loss

Producer-provincial-federal partnership

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6
Q

Describe the agricultural stability program and its funding.

A

Protects against margin decline (decrease in yield)

Producer-provincial-federal partnership

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7
Q

Describe the agricultural investment program and its funding.

A

Investment fund for small losses

Producer-provincial-federal partnership

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8
Q

Describe the agricultural recovery program and its funding.

A

Protects against disaster

Provincial-federal partnership

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9
Q

Describe the Advance Payments Program and its funding.

A

Provides low-interest loans for cash flow management

Federal funding

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10
Q

Describe the Western Livestock Price Insurance Program and its funding.

A

Protects against fluctuation in livestock prices

Producer-provincial-federal partnership

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11
Q

Define probable yield

A

Expected yield per unit of exposure for a given producer, agricultural product and crop year.

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12
Q

Briefly describe 4 adjustments to historical probable yields to estimate the current probable yield.

A
  1. Changes in farming or management practices
  2. Changes in insurance program design
  3. Changes in technology
  4. Weather pattern trends
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13
Q

Define balance-back factor.

A

Factor applied to aggregate premium to correct for individual discounts & surcharges.

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14
Q

Define risk-splitting benefits.

A

Indemnity based on a subset of production for a given agricultural product.

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15
Q

Define reinsurance load.

A

Account for reinsurance costs when the province purchases reinsurance.

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16
Q

Define uncertainty load.

A

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

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17
Q

Define self-sustainability load.

A

A load in rates to recover deficits & maintain surplus.

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18
Q

Briefly describe the purpose of probable yield tests.

A

To ensure there is no over-insurance.

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19
Q

Briefly explain the need for both an uncertainty margin and the self-sustainability load in pricing yield-based plans.

A

Both are necessary to ensure the program is self‐sustainable.

Uncertainty covers future contingencies.

Self-sustainability recovers past deficit.

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20
Q

What is the content of an Actuarial Certification? (3)

A

The Actuarial Certification should provide an opinion on:
|1] METHOD for calculating probable yield (for deriving exposure for yield-based plans)
|2] METHOD for pricing
|3] SELF-SUSTAINABILITY of program

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21
Q

Why is the Actuarial Certification required?

A

For federal funding

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22
Q

How often is the Actuarial Certification required?

A

Frequency is determined using a risk-based approach.

At least every 5 yrs

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23
Q

Identify 2 causes that trigger the requirement of a new Actuarial Certification.

A
  1. Significant changes in program design or methods
  2. New crops
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24
Q

Identify 4 key elements of the Canadian Agri-Insurance Regulation.

A
  1. The maximum coverage is 90% of the probable yield.
  2. Minimum of 10% deductible
  3. Rates must be actuarially sound.
  4. Must include actuarial certifications set by AAFC.
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25
Q

What are the 2 different types of Agri-Insurance plans?

A
  1. Yield-based: can be individual or collective
    2: Non-yield-based: examples are weather derivative, acre-based, mortality for livestock
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26
Q

What is a yield-based plan?

A

A plan where the indemnity payment is based on the actual yield versus the insured yield.

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27
Q

How do non-yield-based plans work?

A

For this type of production insurance, coverage triggers are NOT based on yield.

28
Q

When does yield-based plan pay?

A

Pays when: individual OR collective production < production guarantee for a specified agricultural product.

29
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, price data.

30
Q

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

A

TRIGGER: when pre-determined meteorological thresholds are breached REGARDLESS of actual production.

31
Q

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

A

TRIGGER: when more than a certain % of trees are destroyed by an insured peril REGARDLESS of actual production.

32
Q

What is the formula for probable yield in a yield-based plan?
(just say it in words)

A

Average of yearly production yields

33
Q

Define the purpose of adjustments to historical yields.

A

To reflect current production capability (similar to on-leveling premiums)

34
Q

Identify 3 triggers for making adjustments to historical yields.

A
  • a change in farming or management practices
  • a change in insurance program design
  • a change in data source or data collection technique
  • maturity of perennials (yield would vary over their life cycle)
  • quality variation of crop from year-to-year (due to insured perils or other cause)
35
Q

What actuarial inputs (2) is required regarding adjustments to historical yields (i.e. Actuarial Certification)?

A

REVIEW: trends
DISCLOSE: reliance on agricultural experts for other adjustments

36
Q

Identify 4 stabilizing methods for probable yileds.

A
  1. Use a long-term average of historical yields (15-25yrs)
  2. Cap data to limit year-over-year changes
  3. Split basic & excess coverage since excess coverage is more volatile
  4. Give data outliers smaller weights when averaging (to cushion their effect)
  5. Apply floors/ceilings to data points (to smooth the effect of outliers)
  6. Use transition rules after introducing a new yield method (to smooth the transition)
37
Q

How do you calculate the Production Guarantee?

A

PG = A x P x C
A is the insured area
P is the probable yield per unit of area
C is the coverage level %

38
Q

How do you calculate the Indemnity (in dollars)?

A

Indem$ = Max(0, PG - AP)x(insured unit price)
AP is the Actual production

39
Q

How do you calculate the Liability (in dollars) for yield-based plans?

A

L$(yield-based) = PG x insured price

40
Q

How do you calculate the Liability (in dollars) for non-yield-based plans?

A

L$(non-yield-based) = (# insured units) x (insured price)

41
Q

How do you calculate the Indemnity Rate?

A

IndemRt = Indem$ / L$

42
Q

How do you calculate the Premium Rate?
(6 elements)

A

Indemnity Rate and add the following:
1. Uncertainty Margin
2. Balance-back factor
3. Individual discount/surcharge
4. Reinsurance load
5. Self-sustainability load

43
Q

How do you calculate the Premium (in dollars)?

A

Prem$ = PremRt x L$

44
Q

What are the 3 types of weather events that are covered by non-yield-based plans?

A
  1. Excessive rainfall
  2. Drought
  3. Freeze
45
Q

Identify 3 variables that affect compensation in non-yield-based plans.

A
  1. # units affected
  2. Insured price
  3. Deductible
46
Q

What are the 2 consequences of rate instability in production insurance programs?

A
  1. Fluctuations in participation
  2. Adverse selection
47
Q

What is the effect of severe loss years on rates for production insurance programs?

A

Indem$ UP
–> ( IndemRt UP & SS load UP (to replenish surplus) )
–> PremRt UP
–> Prem$ UP

48
Q

How are NON-yield-based plans priced?

A
  • same as yield-based plans (IRt(UB+/-RS)
    but possibly with extra considerations
  • EXAMPLE: weather-derivative plans may have extra considerations like temperature thresholds
49
Q

Identify 2 pricing considerations for weather derivative plans.

A
  1. DATA: long-term history of meteorological data (vs producer data)
  2. EFFECTS: how weather affects production losses
50
Q

What is the federal requirement for self-sustainability (statistical definition)?

A

for all base & adverse scenarios:
• calculate the 95th 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, or
→ within 25 years with 80% probability

51
Q

What is the basis for the self-sustainability load selection?

A

Selected target surplus level

Can be expressed in different ways:
• $-value
• % of liability dollars
• multiple of premiums
• percentile over a given time horizon

52
Q

What is the basis for the self-sustainability test?

A

25-yr stochastic simulation of financial position

53
Q

What is the source of volatility in stochastic simulations of self-sustainability?

A

The indemnity component

Because the probable yield & premium rate methodologies are designed to avoid large year-to-year variations

54
Q

What is the actuary’s role regarding the self-sustainability test?

A

The actuary should design OR confirm methodology for calculating the self-sustainability load.

55
Q

Identify 2 adverse scenarios relevant to self-sustainability in agri-insurance.

A
  1. Increase in liabilities (increases maximum exposure)
  2. Decrease in liabilities
  3. Adverse claims experience
  4. Introduction of a new insurance plan
  5. Deterioration in market value of investments
56
Q

Provide 1 similarity and 2 differences between the assessment of agricultural self-sustainability and DCAT analysis.

A

SIMILARITY:
Both test plausible adverse scenarios to determine impact on financial condition.
DIFFERENCES:
• Fully stochastic for self-sustainability
• Longer time horizon for self-sustainability

57
Q

True or False?
Government reinsurance for agri-insurance is considered traditional reinsurance.

A

False, it’s an optional deficit-financing scheme

Province may finance deficits as they occur VERSUS regularly contributing to a govt reinsurance fund

58
Q

Describe the funding mechanism of government reinsurance for agri-insurance.

A
  • provincial producer programs contribute a % of premium to provincial & federal reinsurance
  • amount is based on surplus position & risk profile
  • must self-sustain for 25 yrs
59
Q

What triggers government reinsurance for an agri-insurance program?

A

When SURPLUS of the production insurance fund is DEPLETED

Note that indemnities net of private insurance are paid out of production insurance fund first

60
Q

Briefly describe 2 roles of the federal government in agri-insurance programs.

A
  1. Pay a portion of premium
  2. Act as a reinsurer to provincial plans.
61
Q

Briefly describe 2 roles of the provincial government in agri-insurance programs.

A
  1. Determine premium rates
  2. Responsible for claims handling process
  3. Determine probable yield
62
Q

Briefly describe 2 roles of the Canadian producers in agri-insurance programs.

A
  1. Manage crop normally
  2. Pay a portion of premium
63
Q

Briefly describe 2 roles of the private insurance/reinsurance companies in agri-insurance programs.

A
  1. Provide coverage for perils not covered under gov insurance (ex: fire)
  2. Act as reinsurers to the program
64
Q

Briefly describe 3 criteria used to evaluate government insurance programs.

A
  1. Whether it’s social welfare / insurance program
  2. Whether it’s efficient or accepted by the public
  3. Whether it’s necessary or serves social purpose
65
Q

How do you calculate probable yield when there are missing years of data?

A

probable yield = avg (production yield over all years)
- but FILL IN missing years with: (Provincial Avg x index)
- where INDEX = avg ( Production Yld / Provincial Yld ) USING yrs for which producer data is available

Exam 6C - F2022 (58 decks)

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