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CAS EXAM 6C SPRING 2023 > CHEV.AGRIC > Flashcards

CHEV.AGRIC Flashcards

1
Q

What are the BRMs (Business Risk Management) programs in GF2 (6)

A

A-(ISIR)-AW

Agri-Insurance - protect against production loss

Agri-Stability - protest against margin decline

Agri-Investment - investment fund for small losses

Agri-Recovery - protect against disaster

Advance Payments Program - low-interest loans for CF management

Western Livestock Price Insurance Program - protect against fluctuations in livestock prices

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2
Q

Identify purposes of the BRMs in GF2 other than the pure insurance purposes (4/6)

A

FEES

  • 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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3
Q

How are the BRMs programs funded

A

Agri-Insurance - funded by producer-privincial-federal

Agri-Stability - funded by producer-privincial-federal

Agri-Investment - funded by producer-privincial-federal

Agri-Recovery - funded by privincial-federal

Advance Payments Program - funded by federal

Western Livestock Price Insurance Program - funded by producer-privincial-federal

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4
Q

Define probable yield

A

expected yield per unit of exposure of an agricultural product

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5
Q

Define balance-back factor

A

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

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6
Q

Define risk-splitting benefits

A

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

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7
Q

Define reinsurance load

A

a load to account for reinsurance cost when the province purchase reinsurance

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8
Q

Define uncertainty load

A

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

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9
Q

Define self-sustainability load

A

a load in rates to recover deficits and maintain surplus

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10
Q

What is the content of the 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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11
Q

Why is the actuarial certification required and how often is it required

A

For federal funding
At least every 5 years

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12
Q

What triggers the requirement of a new certification (2)

A
  • new crops
  • significant changes in program design or methods
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13
Q

Briefly describe the purpose of probable yield tests

A

to ensure there is no over-compensation

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14
Q

Briefly describe 4 key elements of the Canada Production Insurance Regulations

A

MARP

  • maximum coverage is 90% of the probable yield
  • rates must be actuarially sound
  • probable yields must reflect demonstrated production capabilities (to prevent over-insurance)
  • actuarial certification is required
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15
Q

Identify the main types of Agri-Insurance plans & provide examples for each

A
  • yield based plan (collective or individual)
  • non-yield based plan (weather derivative, mortality for livestock)
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16
Q

Briefly describe 2 types of yield-based production insurance programs

A

Individual: insured production is insured on his own production of the year
Collective: farmers are reimbursed based on production of all insured of an area compared to historical average. Own production is not relevant

17
Q

When does yield-based plan pay

A

When (actual production) < (production guarantee) for a specified agricultural product

18
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

19
Q

What is the trigger for non-yield based plan weather derivative

A

when a pre-determined meteorological threshold is breached regardless of actual production

20
Q

What is the trigger for non-yield based plan tree mortality

A

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

21
Q

What is the formula for probable yield in a yield-based plan

A

average of yearly production yields over the appropriate experience period

22
Q

What is the purpose of adjustments to historical yields

A

to reflect current production capabilities

23
Q

What are the triggers for making adjustments to historical yields (4)

A
  • change in farming or management practices
  • change in insurance program design
  • weather pattern trends
  • change in data sources or in data collection methodologies
24
Q

Stabilizing methods used in historical yield methodologies (6)

A

ACSWST

  • Average: use long-term average of historical yields (15-25 years)
  • Cap: Cap data to limit year-over-year changes
  • Split: split basic and excess coverage since excess coverage is more volatile
  • Weight: give data outliers smaller weights when averaging (to cushion their effect)
  • Smooth: apply floor/ceilings to data points to smooth the effect of outliers
  • Transition rules: use transition rules after introducing a new yield method
25
Q

Formula Production Guarantee

A

PG = A x P x C

A = insured area
P = probable yield per unit of area
C = coverage level %

26
Q

Formula Indemnity paid by insurer

A

Indem$ = Max(0, PG-AP) x (insured unit price)

PG = production guarantee
AP = actual production

27
Q

Formula Liability that insurer assumes for yield-based plan

A

L$ = PG x (insured price)

28
Q

Formula Indemnity rate

A

Indemnity rate = Indem$ / L$

28
Q

Formula Liability that insurer assumes for non-yield-based plan

A

L$ = (# of insured units) x (insured price)

29
Q

How do we calculate Premium Rate

A

Start with indemnity rate and load in:
- uncertainty margin
- balance-back factor
- individual discount/surcharge
- reinsurance load
- self-sustainability load

30
Q

Formula Premium

A

Prem$ = Premium rate x L$

31
Q

Types of weather events covered by a weather derivative plan (3)

A
  • Excessive rainfall
  • Drought
  • Freeze
32
Q

Identify the cost-share levels (refers to sharing of premium contributions)

A

There are 3 cost-sharing levels depending on the severity of the loss:
Comprehensive (lowest cost level): 0% - 80% in the overal loss distribution
High (middle cost level): (80% - 93% in the overal loss distribution)
Catastrophic (highest cost level): 93% - 100% in the overall loss distribution

Costs are shared between the producer, province, federal government according to loss level:
Comprehensive cost level → producer, province, and federal government share costs
High cost level → producer, province, and federal government share costs
Catastrophic cost level → provincial & federal government only
(Note that administrative expenses are shared by provincial & federal government only)

33
Q

Briefly describe the process of self-sustainability assessment in terms of:
i. type of simulation
ii. length of the financial position projection
iii. 2 possible adverse scenarios under testing
iv. criteria of self-sustainability for all scenarios

A

i. stochastic simulation
ii. 25 years
iii. increased liabilities, adverse claim experience
iv. recovery from the 95th percentile deficit must occur on average within 15 years and with 80% probability within 25 years

34
Q

Identify the roles & responsibilities of the FEDERAL government in agri-insurance programs (2)

A
  • develop guidelines for production insurance programs
  • provide financing mechanism when programs are in deficit position
35
Q

Identify the roles & responsibilities of the PROVINCIAL government in agri-insurance programs (2)

A
  • determine (probable yield, premium rate)
  • manage claims
36
Q

Identify the roles & responsibilities of the PRODUCERS in agri-insurance programs (2)

A
  • pay their share of the premium
  • report yields
37
Q

Identify the roles & responsibilities of the PRIVATE INSURANCE & REINSURANCE in agri-insurance programs

A

PRIVATE INSURANCE: provides coverage (for producer) for perils not covered under govt insurance (Ex: fire)
REINSURANCE: provides reinsurance for Govt INSURANCE

CAS EXAM 6C SPRING 2023 (46 decks)

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