Crop insurance reserving

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By Carl X. Ashenbrenner | 18 October 2010

Crop insurance is typically viewed as a short-tailed line of business when reserving for ultimate liabilities. Because it provides coverage for both yield and price risks in a growing season, the annual results can exhibit significant volatility, which is due to the catastrophic nature of weather and inherent price changes. The process for insuring farmers for the revenue risks associated with crops and livestock has been evolving, and the introduction of new policies has altered calculations of the indemnities to farmers in the event of loss. This paper, originally presented at the Casualty Actuarial Society (CAS) Fall 2010 E-Forum, addresses the exposures associated with crop insurance and discusses methodologies to estimate ultimate loss ratios and unpaid claim liabilities for these exposures.