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Systemic Risk in U.S. Crop and Revenue Insurance Programs

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Abstract

This study estimates the probability density function of the Federal Risk Management Agency's (RMA) net income from reinsuring crop insurance for corn, wheat, and soybeans. Based on 1997 data, the authors estimate that there is a 5 percent probability that RMA will need to reimburse at least $1 billion to insurance companies, and that the fair value of RMA's reinsurance services to insurance firms equals $78.7 million. In addition, various hedging strategies are examined for their potential to reduce RMA's reinsurance risk. The risk reduction achievable by hedging is appreciable, but use of derivative contracts alone is clearly no panacea.

Suggested Citation

  • Chuck Mason & Dermot J. Hayes & Sergio H. Lence, 2001. "Systemic Risk in U.S. Crop and Revenue Insurance Programs," Center for Agricultural and Rural Development (CARD) Publications 01-wp266, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    • Handle: RePEc:ias:cpaper:01-wp266
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    Cited by:

    1. Vedenov, Dmitry V., 2002. "Estimating Returns Under Standard Reinsurance Agreement," 2002 Annual meeting, July 28-31, Long Beach, CA 19720, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. Dmitry V. Vedenov & Mario J. Miranda & Robert Dismukes & Joseph W. Glauber, 2004. "Economic analysis of the standard reinsurance agreement," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 64(2), pages 119-134, November.

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