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Chev.Agric Flashcards

1
Q

What is GF2?

A

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

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2
Q

What are the 6 BRM programs in GF2?

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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3
Q

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

A

Agricultural (Production) Insurance

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4
Q

Describe the agricultural insurance program and its funding.

A

Protects against production loss

Producer-provincial-federal partnership

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5
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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6
Q

Describe the agricultural investment program and its funding.

A

Investment fund for small losses

Producer-provincial-federal partnership

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7
Q

Describe the agricultural recovery program and its funding.

A

Protects against disaster

Provincial-federal partnership

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8
Q

Describe the Advance Payments Program and its funding.

A

Provides low-interest loans for cash flow management

Federal funding

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9
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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10
Q

Define probable yield

A

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

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11
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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12
Q

Define risk-splitting benefits.

A

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

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13
Q

Define reinsurance load.

AgriIns

A

Account for reinsurance costs when the province purchases reinsurance.

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14
Q

Define uncertainty load.

AgriIns

A

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

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15
Q

Define self-sustainability load.

AgriIns

A

A load in rates to recover deficits & maintain surplus.

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16
Q

Briefly describe the purpose of probable yield tests.

AgriIns

A

To ensure there is no over-insurance.

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17
Q

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

AgriIns

A

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

Uncertainty covers future contingencies

Self-sustainability recovers past deficit.

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18
Q

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

AgriIns

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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19
Q

Why is the Actuarial Certification required?

AgriIns

A

For federal funding

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20
Q

How often is the Actuarial Certification required?

AgriIns

A

Frequency is determined using a risk-based approach.

At least every 5 yrs

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21
Q

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

AgriIns

A
  1. Significant changes in program design or methods
  2. New crops
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22
Q

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

AgriIns

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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23
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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24
Q

AgriIns

What is a yield-based plan?

AgriIns

A

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

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25
How do non-yield-based plans work? ## Footnote AgriIns
For this type of production insurance, coverage triggers are NOT based on yield.
26
When does yield-based plan pay?
Pays when: individual OR collective production < production guarantee for a specified agricultural product.
27
Define proxy crop coverage. ## Footnote AgriIns
When payment rate for a given crop is BASED ON payment rate for another crop WITH MORE RELIABLE production, price data.
28
What is the coverage trigger for a non-yield based, weather derivative plan?
TRIGGER: when `pre-determined` meteorological `thresholds are breached` REGARDLESS of actual production.
29
What is the coverage trigger for a non-yield based, tree mortality plan?
TRIGGER: when more than a certain % of trees are destroyed by an insured peril REGARDLESS of actual production.
30
What is the formula for probable yield in a yield-based plan? (just say it in words)
Average of yearly production yields
31
Define the purpose of adjustments to historical yields.
To reflect current production capability (similar to on-leveling premiums)
32
Identify 3 triggers for making adjustments to historical yields.
- 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)
33
Identify 4 stabilizing methods for probable yileds.
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)
34
How do you calculate the Production Guarantee?
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 %
35
How do you calculate the Indemnity (in dollars)?
Indem$ = Max(0, PG - AP)x(insured unit price) AP is the Actual production
36
How do you calculate the Liability (in dollars) for yield-based plans?
L$(yield-based) = PG x insured price
37
How do you calculate the Liability (in dollars) for non-yield-based plans?
L$(non-yield-based) = (# insured units) x (insured price)
38
How do you calculate the Indemnity Rate?
IndemRt = Indem$ / L$
39
How do you calculate the Premium Rate? (6 elements)
Indemnity Rate and add the following: 1. Uncertainty Margin 2. Balance-back factor 3. Individual discount/surcharge 4. Reinsurance load 5. Self-sustainability load
40
How do you calculate the Premium (in dollars)?
Prem$ = PremRt x L$
41
What are the 3 types of weather events that are covered by non-yield-based plans?
1. Excessive rainfall 2. Drought 3. Freeze
42
Identify 3 variables that affect compensation in non-yield-based plans.
1. # units affected 2. Insured price 3. Deductible
43
What are the 2 consequences of rate instability in production insurance programs?
1. Fluctuations in participation 2. Adverse selection
44
What is the effect of severe loss years on rates for production insurance programs? ## Footnote AgriIns
Indem$ UP --> ( IndemRt UP & SS load UP (to replenish surplus) ) --> PremRt UP --> Prem$ UP
45
How are NON-yield-based plans priced? ## Footnote AgriIns
- same as yield-based plans (IRt(UB+/-RS) but possibly with extra considerations - EXAMPLE: weather-derivative plans may have extra considerations like temperature thresholds
46
Identify 2 pricing considerations for weather derivative plans. ## Footnote AgriIns
1. DATA: long-term history of meteorological data (vs producer data) 2. EFFECTS: how weather affects production losses
47
What is the federal requirement for self-sustainability (statistical definition)? ## Footnote AgriIns
Program is self-sustainable if `Recovery` from the `95th percentile deficit` would occur: → within `15 years on average`, or → within `25 years with 80% probability`
48
What is the basis for the self-sustainability load selection? ## Footnote AgriIns
Selected target surplus level Can be expressed in different ways: * $-value * % of liability dollars * multiple of premiums * percentile over a given time horizon
49
What is the basis for the self-sustainability test? ## Footnote AgriIns
25-yr stochastic simulation of financial position
50
What is the source of volatility in stochastic simulations of self-sustainability?
The indemnity component Because the probable yield & premium rate methodologies are designed to avoid large year-to-year variations
51
What is the actuary's role regarding the self-sustainability test?
The actuary should design OR confirm methodology for calculating the self-sustainability load.
52
True or False? Government reinsurance for agri-insurance is considered traditional reinsurance.
False, it's an optional deficit-financing scheme Province may finance deficits as they occur VERSUS regularly contributing to a govt reinsurance fund
53
Describe the funding mechanism of government `reinsurance for agri-insurance`.
- 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
54
What `triggers` government r`einsurance 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
55
Briefly describe `2 roles of the federal government` in agri-insurance programs.
1. Pay a portion of premium & admin cost 2. Act as a reinsurer to provincial plans.
56
Briefly describe `2 roles of the provincial government `in agri-insurance programs.
1. Determine premium rates 2. Responsible for claims handling process 3. Determine probable yield
57
Briefly describe `2 roles of the Canadian producers in agri-insurance` programs.
1. Manage crop normally 2. Pay a portion of premium
58
Briefly describe `2 roles of the private insurance/reinsurance `companies in agri-insurance programs.
1. Provide coverage for perils not covered under gov insurance (ex: fire) 2. Act as reinsurers to the program
59
Briefly describe 3 criteria used to evaluate government insurance programs.
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
60
How do you calculate probable yield when there are missing years of data?
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

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