Crop Insurance Reserving

The crop insurance industry is a private-public partnership, whereby the private companies issue policies and handle claims for multi-peril crop insurance policies, which are administered by the U.S. Department of Agriculture-Risk Management Agency. The private companies are reinsured by the Federal Crop Insurance Corporation under the terms of the Standard Reinsurance Agreement. Private companies also issue insurance policies not administered by RMA, which provide additional cover, typically referred to as “Crop-Hail.”

Crop insurance is a short-tailed line of business; however, significant variation to the ultimate loss ratio exists on an annual basis. Reserving for crop insurance is unique due to the characteristics of the crop insurance policy and catastrophic nature of the risks: weather and price changes. This catastrophic risk is mitigated due to reinsurance from the Federal Crop Insurance Corporation. This paper presents methodology to estimate ultimate losses and reserves for crop insurance.

Keywords: Crop Insurance, Short-Tail, Catastrophe Reserves, Crop Hail