AIR Worldwide (AIR) today announced that it has updated its Multiple Peril Crop Insurance (MPCI) Models for the United States and China.
These are weather-based models that estimate underwriting gains and losses based on crop yield probabilities in the context of current conditions. Munich Re, a leading global reinsurer, has licensed the updated models to enhance its risk management capabilities for its catastrophe-exposed agricultural treaties.
“The risk associated with agricultural insurance portfolios is extremely complex, which makes them challenging for insurance and reinsurance carriers participating in the U.S. MPCI program,” said Lambert Muhr, senior underwriter for agricultural risks, Munich Re. “The ability to analyze the sensitivity of agricultural portfolios to different yield and price volatility scenarios is available in AIR’s new model. That represents a major advantage given the recent changes in overall premiums, premium rates, and other uncertainties affecting this market.”
The MPCI Model for the U.S. accounts for the latest Standard Reinsurance Agreement (SRA) released by the U.S. government to estimate retained losses for the crop insurer. With the Version 15 release of AIR’s CATRADER® system, the model was also enhanced to include multiple price volatility catalogs that allow for more refined reinsurance analysis given increasing uncertainty in commodity market prices. Another update is the ability for the model user to modify industry premiums by adjusting default values as the U.S. government changes premium rates of the key program crops. Finally, the historical event catalog has been updated to incorporate all years from 1974 through 2011, and additional reporting tools have been added for easy manipulation and visualization of model results.
The MPCI Model for China has been updated to include the latest policy conditions used in the market and an updated database of industry exposure.
“Weather is the predominant driver of agricultural losses in China, and AIR’s crop model properly accounts for weather events at a very high resolution,” said Karl Murr, head of agriculture, Munich Re. “The model provides a holistic view of our risk and will be a central part of our China agricultural portfolio risk assessment process.”
AIR’s MPCI Model for the United States was first released in 2007. Currently, it is the leading independent pricing model for the crop reinsurance industry. Last year, the majority of the traditional crop reinsurance transactions were analyzed using the AIR U.S. MPCI Model. Crop insurance companies are using the AIR U.S. MPCI Model results to assess policy risk and allocate policies to the various risk-sharing funds available in the SRA program as part of their fund designation process. The model is also being adopted by investors in the ILS crop risk transfer markets.
AIR released the industry’s first Multiple Peril Crop Insurance Model for China in 2011. It provides a fully probabilistic approach for determining the likelihood of losses to the country’s major crops of corn, cotton, rapeseed, rice, soybeans, and wheat. The model employs AIR’s advanced Agricultural Weather Index(TM) to capture the significant effects that weather-related perils have on each crop during different growth stages. It explicitly models damage resulting from various weather perils, including drought, floods, and typhoons, which are the leading causes of crop loss in China. The model accommodates China’s complex policy conditions, which vary by crop type, peril, and province.
“The AIR crop models for the United States and China address significant weaknesses found in traditional crop models,” said Dr. Oscar Vergara, business development manager at AIR Worldwide. “To provide the most accurate probabilistic estimate of potential crop portfolio losses, they account for the effects of weather, technology improvements over time, changes in policy types and their market penetration, and changes in government protection agreements.”
About Munich Re
Munich Re stands for exceptional solution-based expertise, consistent risk management, financial stability and client proximity. This is how Munich Re creates value for clients, shareholders and staff. In the financial year 2012, the Group – which combines primary insurance and reinsurance under one roof – achieved a profit of €3.2bn on premium income of around €52bn. It operates in all lines of insurance, with around 45,000 employees throughout the world. With premium income of around €28bn from reinsurance alone, it is one of the world’s leading reinsurers. Especially when clients require solutions for complex risks, Munich Re is a much sought-after risk carrier. Its primary insurance operations are concentrated mainly in the ERGO Insurance Group, one of the major insurance groups in Germany and Europe. ERGO is represented in over 30 countries worldwide and offers a comprehensive range of insurances, provision products and services. In 2012, ERGO posted premium income of €19bn. In international healthcare business, Munich Re pools its insurance and reinsurance operations, as well as related services, under the Munich Health brand. Munich Re’s global investments amounting to €214bn are managed by MEAG, which also makes its competence available to private and institutional investors outside the Group.
