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Modelling the Sustainability of the Canadian Crop Insurance Program: A Reserve Fund Process Under a Public–Private Partnership Model

Chengguo Weng, Lysa Porth (), Ken Seng Tan and Ryan Samaratunga
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Chengguo Weng: University of Waterloo
Lysa Porth: University of Waterloo
Ken Seng Tan: University of Waterloo
Ryan Samaratunga: University of Waterloo

The Geneva Papers on Risk and Insurance - Issues and Practice, 2017, vol. 42, issue 2, 226-246

Abstract: Abstract The objective of this paper is to model the multilayer risk-sharing structure of the crop insurance system in Canada and, in doing so, is the first paper to provide a quantitative assessment of the sustainability of the program. A reserve fund process is developed using actual crop insurance data from Manitoba to model the surplus of the crop insurance company. Based on simulation, a number of actuarial risk measures are calculated, including mean surplus, expected shortfall, value at risk and conditional tail expectation. The results point to a potential fault with the design of the current risk-sharing structure, where the federal–provincial reinsurance fund premium rate is designed to increase as the mean surplus of the insurer becomes less. This potentially penalises an insurance company that purchases reinsurance, even though reinsurance can reduce the risk exposure to the federal government by more than 58 per cent in some cases.

Keywords: risk management; crop insurance; reinsurance; premium computation; reserve fund process (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:pal:gpprii:v:42:y:2017:i:2:d:10.1057_s41288-017-0044-5