(Photo credit: Shree Krishna Dhital.)
Hudson Crop (a unit of Hudson Insurance Group, New York) has selected catastrophe modeling firm AIR Worldwide’s AIR Fund Designation Service to enhance its fund designation strategy. AIR’s fund designation solution helps insurers to manage their crop portfolio risk and optimize their company’s stakeholder value under current yield, price, and crop insurance program uncertainties.
“AIR has a proven track record of providing powerful solutions for agricultural risk management, providing us with more data and analytics to make better allocation decisions,” comments Dan Gasser, president, Hudson Crop Insurance Services.
The AIR Fund Designation Service provides fund designation alternatives, allowing companies to choose the option that best fits their risk-return target and profile, according to the vendor. The service uses AIR’s Multiple Peril Crop Insurance (MPCI) Model for the U.S. to rank and sort policies based on their estimated risk level. Several risk metrics, such as probability of loss, mean loss ratio, 100-year return loss ratio, and tail value at risk, can be used for risk assessment of individual insurance policies. AIR can then apply various retention levels to develop multiple fund designation strategies—those giving the highest expected return for a chosen level of risk.
“Because it is unrealistic to accurately forecast weather, yield, and price outcomes for the next growing season at the time of the fund designation deadline, the best approach is often a probabilistic one,” comments Oscar Vergara, assistant VP, AIR Worldwide. “AIR leverages its advanced MPCI model to simulate10,000 possible yield and price outcomes that are equally likely to occur during the next growing season. The modeled events are based on the current climate, geographically correlated and trended to current levels of crop technological improvements. We couple the power of stochastic modeling with historical producer data through AIR’s Insured Producer Performance (IPP) Score, and companies like Hudson Crop are able to use this enhanced optimization service at the time of each fund designation deadline.”
Hudson Also Licenses AIR MPCI Model
As part of its contract with AIR, Hudson Crop has also licensed the recently updated U.S. Multiple Peril Crop Insurance (MPCI) Model and the U.S. Crop Hail Model, which AIR claims are the leading models for the U.S. crop insurance and reinsurance industry, in AIR’s CATRADER software application.