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AIR Worldwide : Aspen Reinsurance licenses AIR’s Crop Model for China

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Catastrophe risk modeling firm AIR Worldwide (AIR) announced that Aspen Reinsurance has licensed AIR’s Multiple Peril Crop Insurance Model (MPCI) for China to enhance its risk management capabilities in catastrophe-exposed agricultural regions of China.  

“The structure of the agriculture insurance market in China continues to evolve and improve. Given the complexities of provincial and local government protection in this region, we need a reliable and independent tool to help manage the risk,” said Massimo Amico, senior underwriter, agriculture reinsurance, Aspen Re. “AIR’s crop model provides insight into the severity, frequency, and location of potential future droughts, floods, and typhoons in China, giving us an objective and reliable assessment of the potential impact on crop losses.”

Weather is the predominant driver of agricultural losses in China. In the AIR Multiple Peril Crop Insurance Model for China, a weather-based approach to crop modeling ensures greater accuracy in modeled loss calculations. The high resolution model explicitly accounts for the spatial correlation of weather events, whether they are widespread or highly localized. The model thereby enables an assessment of crop risk at both provincial and county levels, catering to the wide variety of insurance needs, such as accurately determining the remaining risk to reinsurers after complex rules relating to geography-specific government recoveries are considered.

“The AIR Multiple Peril Crop Insurance Model for China leverages industry-leading crop loss modeling experience; in-depth knowledge of China’s geography, farming practices, and insurance system; and a thorough grasp of the frequency and severity of potential adverse weather events and resulting crop losses,” said Uday Virkud, P.E., executive vice president at AIR Worldwide. “Companies assuming risk in China are increasingly turning to AIR to help manage their catastrophe risk. Our relationship with Aspen Re reflects our continued focus on and growth in this evolving insurance market.”

Alan Calder, group head of catastrophe risk management at Aspen Re, added, “The new AIR Multiple Peril Crop Insurance Model for China will be a central part of our China agricultural portfolio risk assessment process. We believe there are many business benefits from this model, and it will be an additional tool to help us manage and price agricultural risk in China.”

AIR released the industry’s first Multiple Peril Crop Insurance Model for China in 2011. It provides a fully probabilistic approach for determining the likelihood of losses to the country’s major crops of corn, cotton, rapeseed, rice, soybeans, and wheat. The model employs AIR’s advanced Agricultural Weather Index™ to capture the significant effects that weather-related perils have on each crop during different growth stages. It explicitly models damages resulting from various weather perils, including drought, floods, and typhoons, which are the leading causes of crop loss in China. The model accommodates China’s complex policy conditions, which vary depending on crop type, peril, and province.