Agricultural

• To help producers manage income instability from changes in market conditions and weather events
• AgriInsurance, AgriStability, AgriInvest, AgriRecovery, Advance Payments program, Western Livestock price insurance program

• Growth and dev of agri sector
• Dev national standards for agri risk mgt programs, incl standards for actuarial certifications for insurance programs

To correct overall premium collected for discounts/surcharges given to individual producers

• % of total expected production value, below which losses are covered (yield-based plans only)
• 1- coverage level = ded

• total insured production value (yield-based plans only)
• = Insured area * Probably yield per unit of area * Coverage level

1. Yield-based: limit / amount of insurance coverage (i.e. max losses at harvest) / TIV of an agri product = production guarantee * Insured price
2. Non-yield-based = # of insured units * insured price per unit

• Claim amount
  1. yield-based; payable when actual production < production guatantee due to covered perils.
  2. = max (0, Production guarantee - Actual production) * Insured price
  3. non-yield-based = # of units affected * (1-ded) * insured price per unit

Indemnities / Liabilities

• ROL
• Prem / liabilities
• Prem = expected losses + uncertainty margin + self-sustainability loads (excl admin expenses)

Expected yield per unit of exposure for a producer, agri product and crop year, as the measure of coverage for yield-based plan.

# of units insured * Yield per unit * Price

Indemnities based on a subset of total farm production for a given agri product

• to recover past deficits / redistribute surplus based on selected level
• purpose to maintain a certain surplus level for the fund to survive in adverse scenarios

• Risk margin to ensure conservative estimates
• Account for limitations with data, assumptions or methods and stat volatility
• High for crops with sparse data, change in program design or YOY loss volatility

• Uncertainty creates conservative estimates for future
• self‐sustainability load recovers historical deficits.

Production per unit of exposrue (e.g. kg/acre)

Production insurance with protection for producers's revenue against uncontrollable production losses (hail, drought, flood)

• Expected losses / indemnity rate: LT avg adjusted for program conditions, changes in probable yield methods, trend
• Balance-back: to ensure overall adequate while differentiating among producers based on experience to encourage loss prevention & mitigation
• Uncertainty margin
• Self-sustainability loads
• Reinsurance load: when prov purchases private reins, allocation of reinsurance to plans
• Excludes admin expenses, profit

Non‐yield based plans don’t pay out benefits based on production level but based on predetermined occurrence of an event, may be weather related. considerations:

• need TP data to estimate the probability of the event occurring
• estimated benefits which will be paid if the event occurs

• Indemnity rates are basis for prem. both hist indemnities and liabilities are adjusted
• Complement of credibility
• Balance premium responsiveness and stability

• Current probable yield methods
• Current program conditions (insured perils)
• Trends
• Coverage level
• Quality
• Changes in mix of insureds

• Larger group of data (prov avg)
• Proxy agri product
• Theoretical model
• Simulation
• Prior judgmental selection

1. LT averaging methods, with higher weights to more recent years
2. Split into basic and excess:
   • basic more credible / stable
   • excess more volatile and use longer period or a larger group of data
3. Transition rules after introducing new methods
4. Capping YOY changes in indicated

• Shared btw producers, prov and fed.
• Admin is shared btw prov and fed

Protects producers against decrease in their production income, due to an increase in expenses, a decrease in prices or a decrease in production

• Mainly by prov and fed
• Producers make some contributions to cover portion of expected losses and admin

Program to encourage producers to save money. Gov will match up to first 1% (max 15,000).

• Producers can deposit up to 100% of their annual allowable net sales and receive matching gov deposit on up to 1st 1%, subj to 15k limit
• Amount allowable is capped at 400% of avg allowable net sales.

Shared between prov and fed

Disaster recovery program which is assessed on a case by case basis

Prov and Fed

Provides low interest short term loans to producers

Producer would seek cash advance thru a APP administrator for up to 50% of estimated value of their agri production, subj to max cash advance of 400k

Fed

Protects against fluctuations in market value of livestock.

Prov and Fed

1. probable yield methods to derive insured exposure for yield based plans
2. premium rate methods to fund insurance program
3. self-sustainability of insurance program

1. coverage level below 90% of probable yield or production value
2. probable yields:
   • reflect product's production capability
   • province must submit probable yield tests to show methods do not lead to over-insurance
3. premium rates actuarially sound:
   • incl self-sustainable load
   • reflet all elements of plan that cost $ (other than admin)
4. act cert required for probably yield, premium rate methods and self-sustainability
5. if prov doesn't submit, fed may reduce contributions to prov program

1. Data reliance: disclose reliance on others
2. Documentaion of work: detailed enough for another actuary to reproduce calc given appropriate data
3. Actuarial judgment: clearly document.
4. Disclose materiality standard

1. Individual yield: pay when individual production falls < production guarantee
2. Collective yield: pay when collective production for a group of producers or area falls < collective production guarantee (individual production irrelevant)
3. Proxy crop coverage: payment rate for a crop based on another crop with more reliable production and data.

1. weather-derivative plans:
   • pay based on weather event (excess moisture, drought), actual production irrelevant.
   • e.g. indemnity = 50% of insured value if > 5 consecutive days of rainfall > 10mm
2. acre-based:
   • protect a field against adverse event based on size.
   • e.g. Destruction of 50% of field due to fire (production irrelevant)
3. perennial coverage:
   • pay based on # of trees subject to a deductible
   • e.g. when > 5% of insured apple trees detroyed by covered peril based on # insured trees, # damaged trees, insured value of damaged trees
4. mortality insurance:
   • based on probability of death from an insured peril,
   • e.g. hog mortality from disease

• defn: expected yield per unit of exposure for a given producer, product and year.
• calc:
  • averaging producer's own actual yields
  • use an area/prov avg yield and apply a producer productivity index (a differential that reflects producer's expected performance vs. avg)
• example on page 9

Changes in

• farming and mgt practices
• insurance program design
• technology
• weather patterns
• mix of insureds over time and across geo regions

1. LT averaging methods
2. Cushioning: less weight to occ's outside of given stat measure of deviation around mean to avoid distortions
3. Smoothing: floors and ceilings to hist yields outside of given stat measure of deviation around mean
4. Capping YOY change in probable yields

• Compare probable (expected) and actual hist yields.
• Required per fed to ensure methodologies don't lead to over-insurance

• quality loss: compensate for decrease in quality of agri production due to covered peril
• reseeding: costs to reseed when damages occur early in the season with enough time to reseed
• unseeded crop: pay for loss of income of unseeded crop due to covered peril
• hail spot loss: cost for hail damages
• emergency works: pay for cost to mitigate further damages when there's partial damage to a crop

ensure:

• sufficient financial resources to operate without other capital injections
• able to recover from severe events within reasonable period of time
• self-sustainable over a 25 year period / remain at surplus in LT
• make sure program is sustainable thru having past deficits recovered

• Similar:
  • scenario testing
  • forward looking
  • consider all material risks
• Dif:
  • Self-sustainability: looks at time needed to regain surplus position; DCAT: does not
  • Self-sustainability: fully stochastic, longer time horizon
  • DCAT: done each year; self-sustainability certification: not required every year
  • self-sustainability: projection period of surplus position starts end of 6th year after an event; DCAT: starts at the beginning

• Design or confirm methodology based on simulations
• Load is based on selected target surplus level recommended by actuary
• Periods of accumulation where surplus > target, load would be lower to redistribute portion of surplus via premium reductions; where surplus < target, higher to collect additional premium to replenish surplus position

• $ value
• % of liabilities
• Multiple of premiums (proxy for expected losses)
• Given percentile over a given horizon

Agg BS and IS projection at various percentiles over 25-year period

1. expected surplus fund balances and ranges of potential surplus fund balances at various points in projection period
2. premium rate volatility
3. recovery period from large deficits
4. sensitivity testing -> conditions that could compromise self-sustainability of the program

• increase in liabilities: since higher liab translate into higher max losses
• decrease in liabilities: when surplus position is vulnerable (following CAT) since takes longer to replenish surplus given lower premium income
• adverse claims experience
• Intro of new major insurance plans
• CAT event
• Reduction in investment returns

Recovery from 95th percentile deficit occurs,

1. on avg, within 15 years
2. with 80% probability, within 25 years

% of prov premiums to reinsurance funds based on surplus position:

1. % is lower when financial position is stronger
2. % varies from prov to prov based on risk profile and surplus fund balances
3. % established to ensure reinsurance funds are self-sustaining over 25-year period

• when surplus fund is depleted
• prov must retain min 2.5% of liab
• remaining deficit financed at 75%/25% by fed/prov reinsurance fund

• Contribute to program prem
• Manage crops normally
• Report actual yield

• Determine premium rates and collect prem
• adjust losses
• Contribute to program prem
• Contribute to program admin expenses

• Contribute to program prem
• Contribute to program admin expenses
• Act as a reinsurer to provincial plans.

• Provide private reinsurance coverage
• Provide other coverages like spot-loss hail