Reinsuring Group Revenue Insurance with Exchange-Provided Revenue Contracts
Date
1999-05-01
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Center for Agricultural and Rural Development
Abstract
Shows that it is feasible to use exchange-based contracts as a substitute for the Standard Reinsurance Agreement. The authors analyze a Group Revenue Contract, which would allow producers to guarantee against reductions in county-level revenues. The insurance company would then purchase put options on an exchange-based revenue contract to protect against statewide revenue shortfalls. The analysis suggests that this reassurance tool would eliminate most though not all of the systemic risk associated with this product.