Reinsuring Group Revenue Insurance with Exchange-Provided Revenue Contracts

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1999-05-01
Authors
Hayes, Dermot
Griffin, Steven
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Babcock, Bruce
Emeritus Professor
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Hayes, Dermot
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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.

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