Adverse scenarios related to self-sustainability in Agri-Insurance
I don't understand how a decrease in liabilities is an adverse scenario, was wondering if someone can elaborate more on this... I understand it would be harder to replenish surplus but if the liabilities decreased you wouldn't need a high surplus anyway? And even if the surplus is depleted, it will trigger reinsurance.
Comments
Hi,
My understanding of this is that a decrease in liabilities considered here would be temporary -> Naturally, we expect the agriculture industry to continue expanding long term. And if this happens after an important catastrophe where surplus is depleted (source example), this can make it difficult to recover the lost surplus. We will not be decreasing our target surplus due to a temporary decrease in liabilities.
Also, the agricultural program must be able to recover from severe loss scenarios within a reasonable period of time in order to meet federal self sustainability requirements and if we have a decrease in liabilities immediately after a severe loss scenario, you can see how this could be a problem for meeting this requirement.
Government reinsurance is available to finance any deficit in financing, yes, but is meant as a sort of last resort line of credit. Ideally each province should have enough surplus to be self sustainable without government reinsurance. Also, government reinsurance is funded through contributions based on each province's surplus and if nobody maintains sufficient surplus, this fund would be empty anyway.
Hello, could you please expand on how a decrease in liabilities after a severe loss scenario be a problem for Self-sustainability?
If you have a decrease in liabilities, you are not writing a lot of premium which means it is more difficult to replenish your surplus