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Exam 6c 2025 > Chev.Agric > Flashcards

Chev.Agric Flashcards

1
Q

what is GF2 (Growing Forward 2)

A

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

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2
Q

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

A

1) Agri-Insurance (protects against Production Loss)
2) Agri-Stability (protects against Margin Decline)
3) Agri-Investment (Investment Fund for small losses)
4) Agri-Recovery (protects against Disaster)
5) Advance Payments Program (low-interest loans for Cash Flow management)
6) WLPIP - Western Livestock Price Insurance Program (protects against flucutuations in livestock prices)

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3
Q

identify purposes of the BRMs in GF2 other than the pure insurance purposes (6)

A
  • ensure availability and affordability of agriculture 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

how are the BRMs (Business Risk Management) programs funded

A

(BRM: 1,2,3,6): Agri-Insurance, Agri-Stability, Agri-Investment, WLPIP:
FUNDED BY (producer-provincial-federal)
(BRM 4): Agri-Recovery:
FUNDED BY (provincial-federal)
(BRM 5): Advance Payment Program (5):
FUNDED BY (federal)

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5
Q

probable yield

A

expected yield of an agricultural product (measures coverage in yield-based plans)

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6
Q

balance-back factor

A

(factor applied to aggregate premium) to correct for (individual discounts & surcharges)

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7
Q

risk-splitting benefits

A

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

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8
Q

reinsurance load

A

to account for reinsurance costs when the province purchases reinsurance

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9
Q

uncertainty load (or risk margin)

A

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

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10
Q

self-sustainability load

A

a load in rates to recover deficits & maintain surplus

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11
Q

reason for (uncertainty, self-sustainability) load

A

uncertainty load: covers future contingencies
self-sustainability load: recovers past deficits

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12
Q

Actuarial Certification - what is the content of such certification

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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13
Q

Actuarial Certification - why is it required

A

for federal funding

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14
Q

what is GF2 (Growing Forward 2)

A

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

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15
Q

identify purposes of the BRMs in GF2 other than the pure insurance purposes (6)

A

The examiners’ report accepted the pure insurance functions AND these:
* ensure availability and affordability of agriculture 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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16
Q

how are the BRMs (Business Risk Management) programs funded

A

*(BRM: 1,2,3,6): Agri-Insurance, Agri-Stability, Agri-Investment, WLPIP: FUNDED BY (producer-provincial-federal)
*(BRM 4): Agri-Recovery: FUNDED BY (provincial-federal)
*(BRM 5): Advance Payment Program (5): FUNDED BY (federal)

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17
Q

probable yield

A

expected yield of an agricultural product (measures coverage in yield-based plans)

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18
Q

balance-back factor

A

(factor applied to aggregate premium) to correct for (individual discounts & surcharges)

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19
Q

risk-splitting benefits

A

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

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20
Q

reinsurance load

A

to account for reinsurance costs when the province purchases reinsurance

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21
Q

uncertainty load (or risk margin)

A

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

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22
Q

self-sustainability load

A

a load in rates to recover deficits & maintain surplus

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23
Q

reason for (uncertainty, self-sustainability) load

A

uncertainty load: covers future contingencies
self-sustainability load: recovers past deficits

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24
Q

Actuarial Certification - what is the content of such certification

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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25
Q

Actuarial Certification - why is it required

A

for federal funding

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26
Q

Actuarial Certification - how often is it required

A
  • frequency is determined using a RISK-BASED approach
  • at least every 5 yrs
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27
Q

Actuarial Certification - what triggers the requirement of a new certification (2)

A
  • significant changes in program design or methods
  • new crops
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28
Q

Actuarial Certification - briefly describe the purpose of probable yield tests

A

to prevent over-insurance

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29
Q

regulation - key elements of Canadian Agri-Insurance Regulation (4)

A
  • minimum deductible = 10%
  • probable yields must reflect DEMONSTRATED production capabilities (to prevent over-insurance)
  • rates must be ACTUARIALLY SOUND (include self-sustainability load + relevant costs)
  • Actuarial Certification is required (if uncertified, then federal govt may reduce premium contributions to province)
30
Q

what are the 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
31
Q

what is a yield-based plan

A

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

32
Q

how do non-yield-based plans work

A

For this type of production insurance, coverage triggers are NOT based on yield.
Eg: A weather derivative plan is triggered when a pre-determined meteorological threshold is breached REGARDLESS of actual yield. (This might be rainfall that exceeded a specific amount.)

33
Q

Types of production insurance

A

yield-based or non-yield-based production insurance plan

34
Q

steps of pricing a yield-based production insurance plan

A
  1. calculate the average production yield - also called “probable yield”
  2. adjusting historical probable yield
  3. Basic Formulas :
    (yield) PG = A x P x C
    Indem$ =MAX ( 0, PG - AP ) x (insured unit price) = IndemRt x L$
    where
    A = insured Area
    P = Probable yield per unit of area
    C = coverage level %
  4. Yield & Non-yield formulas:
    L$ (yield-based plans) =PG x (insured price)
    L$ (non-yield-based plans) =(# of insured units) x (insured price)
    Indem$ = IndemRt x L$
    Prem$ = PremRt x L$
35
Q

what load factors must be incorporated to arrive at the final PremRt

A

to get PREMIUM RATE, start with INDEMNITY RATE then incorporate: (UB+/-RS)
- uncertainty margin
- balance-back factors
- individual discount/surcharge
- reinsurance load
- self-sustainability load

36
Q

formulas - yield-based plans: (PG, L) or Production Guarantee & Liability

A

PG = APC
L$ = APC x (insured unit price)
where
A = insured Area
P = Probable yield per unit of area
C = coverage level %

37
Q

yield-based plan - formulas: indemnity $s

A

Indem$ = MAX(0, PG - AP) x (insured unit price)
where
PG = Production Guarantee
AP = Actual Production

38
Q

formulas - non-yield-based plans: (PG, L) or Production Guarantee & Liability

A

PG formula is not applicable since there is NO production guarantee for non-yield-based plans

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

39
Q

non-yld-based plan - types of weather events that are covered (3)

A

excessive rainfall, drought, freeze

40
Q

non-yld-based plan - identify variables that affect compensation in such plans (3)

A

units affected, insured price, deductible

41
Q

production insurance programs - what are included/excluded in rate calculations for production insurance programs

A

expected losses only (administrative costs are shared between federal & provincial govt)

42
Q

production insurance programs - what are the consequences of rate instability

A

fluctuations in participation, adverse selection

43
Q

production insurance programs - what load factors must be incorporated to arrive at the final PremRt

A

to get PREMIUM RATE, start with INDEMNITY RATE then incorporate:
- uncertainty margin
- balance-back factors
- individual discount/surcharge
- reinsurance load
- self-sustainability load

44
Q

production insurance programs - what is the effect of severe loss yrs on rates

A

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

45
Q

production insurance programs - how are NON-yield-based plans priced

A
  • same as yld-based plans (IRt(UB+/-RS)
    but possibly with extra considerations
  • EXAMPLE: weather-derivative plans may have extra considerations like temperature thresholds
46
Q

Production insurance programs - identify pricing considerations for weather derivative plans (2)

A

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

47
Q

production insurance programs - 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:
[1] Comprehensive (lowest cost level): 0% - 80% in the overal loss distribution
[2] High (middle cost level): (80% - 93% in the overal loss distribution)
[3] Catastrophic (highest cost level): 93% - 100% in the overall loss distribution

48
Q

production insurance programs - identify how are costs (premiums) shared between: producer, provincial, federal governments

A

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

49
Q

how is self-sustainability defined?

A
  • Conceptual defn: RECOVER from severe loss scenarios WITHIN a reasonable time
  • Statistical defn: FOR ALL (base, adverse) scenarios with INITIAL DEFICIT = 6th yr, 95th percentile: MUST RECOVER DEFICIT IN (15yrs on avg AND 25yrs with 80% probability)
50
Q

how can we design a self-sustainable program

A

The basis for a self-sustainability test is a 25-year stochastic simulation of financial position. Without getting into the details of how this simulation is designed, just note that the simulation should take into account various adverse scenarios.

51
Q

What is the actuary’s role regarding self-sustainability

A

design or confirm the methodology used for calculating the self-sustainability load.

52
Q

actuary - identify adverse scenarios relevant to self-sustainability in agri-insurance

A
  • increase in liabilities (increases maximum exposure)
  • decrease in liabilities
    • this can be severe when surplus vulnerable after cat since future premiums are lower & deficit recovery takes longer
  • adverse claims experience
  • introduction of a new insurance plan
  • deterioration in market value of investments
  • combination of the above scenarios
53
Q

how does the self-sustainability test (6th yr, 95th percentile) compare to DCAT?

A

Similarity: both consider (base, adverse) scenarios
Difference: Agri self-sustainability uses a fully stochastic simulation over a longer time horizon

54
Q

what is the role of government and other players in agricultural insurance

A

Govt agency provide federal-provincial programs. support the traditional system of private insurance between an insurer and producer/insured. Private insurers may provide coverage for perils (like fire) not covered by normal production insurance. Private insurers may also offer reinsurance

55
Q

what is the federal requirement for self-sustainability (statistical defn)

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, and
→ within 25 years with 80% probability

56
Q

what is the BASIS for the self-sustainability load selection

A

LOAD BASIS = selected target surplus level, and can be expressed in different ways
* $-value
* % of liability dollars
* multiple of premiums
* percentile over a given time horizon

57
Q

what is the basis for the self-sustainability test

A

TEST BASIS: 25-yr stochastic simulation of financial position

58
Q

what is the source of VOLATILITY in stochastic simulations of self-sustainability

A
  • mainly the indemnity component
  • because the (probable yield & premium rate) methodologies are designed to avoid large year-to-year variations
59
Q

is Govt reinsurance for agri-insurance considered traditional reinsurance

A
  • no, it’s an optional deficit-financing scheme
  • province may finance deficits as they occur VERSUS regularly contributing to a govt reinsurance fund
60
Q

what triggers govt 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
61
Q

identify the roles & responsibilities of the FEDERAL govt in agri-insurance programs

A
  • develop guidelines for production insurance programs
  • provide financing mechanism when programs are in deficit position
62
Q

identify the roles & responsibilities of the PROVINCIAL govt in agri-insurance programs

A
  • determine (probable yield, premium rate)
  • manage claims
63
Q

identify the roles & responsibilities of the PRODUCERS in agri-insurance programs

A
  • pay their share of the premium
  • report yields
64
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

65
Q

Trigger for Actuarial Certification:

A

*significant changes in program design or methods
*new crops

66
Q

Trigger for Historical Adjustments to Probable Yield:

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)
67
Q

Trigger for Risk Transfer Test:

A
  • inception of contract
  • when a change to the existing contract significantly alters expected future cash flows
68
Q

Examples of areas where Actuarial Certifications are required (4)

A
  • Agricultural Insurance Production Programs
  • Risk Transfer Analysis
  • Valuation of Reserves
  • Rate Filings (certain aspects)
69
Q

Examples of areas where Transition Rules are used (2)

A
  • Agricultural 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
70
Q

Examples of areas where stochastic models are used

A

Agricultural Insurance
- for adverse scenarios in self-sustainability model
DCAT scenarios
- when risk distribution is easily inferred
MfADs
- where the cost distribution is skewed, and deterministic methods may not work well

71
Q

evaluate the government agricultural insurance program using the criteria from the Government Insurer’s Study Note

A

welfare or insurance?
- insurance because producers pay premiums and government pays covered losses
efficient?
- yes, because government uses existing infrastructure and doesn’t make a profit
necessary? yes, because farmers rely on the income stability the government program provides

Exam 6c 2025 (14 decks)

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