Munich Re Licenses AIR’s Updated Crop Insurance Models for U.S., China

AIR Worldwide reported 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 condition,” AIR explained.

The bulletin also noted that Munich Re has licensed the updated models “to enhance its risk management capabilities for its catastrophe-exposed agricultural treaties.”

Lambert Muhr, senior underwriter for agricultural risks, Munich Re, said: “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. 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.”

AIR said 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.

Karl Murr, head of agriculture at Munich Re, explained. “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. 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 business development manager, Dr. Oscar Vergara, explained that the crop models for the United States and China “address significant weaknesses found in traditional crop models. 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.”

Source: AIR Worldwide