Download - TA-APH Yield Endorsement · 1 Understanding the Trend Adjusted APH Yield Endorsement Bruce J. Sherrick University of Illinois September 12, 2013 Mankato, MN

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Understanding the Trend Adjusted APH Yield Endorsement

Bruce J. SherrickUniversity of Illinois

September 12, 2013Mankato, MN

www.farmdoc.illinois.edu

• Originally Sponsored by Illinois Corn Growers

• Research and technical support provided by University of Illinois and iFAR

TA-APH Yield Endorsement

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• Problem addressed: Corn and soybean yields are increasing through time

• APH used in crop insurance guarantees is simple average of past yields (up to 10)

• Average of past trending yields lags actual expected yield, which is what APH is meant to measure

• INTRODUCE: Trend Adjusted APH yield

Trend Adjusted Yield Endorsement


Trend Adjusted APH: Main Idea

Insu

ran

ce Y

ea

rAPH Window

Ave APH

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Trend Adjusted APH: Main Idea

Insu

ran

ce Y

ea

r

APH Window

Ave APH

TA APH


TA APH Endorsement

• Applies to most APH-based yield and revenue policies (except organic, transitional, specialty)

• Does not apply to CAT• Does not apply to written agreements except

High-risk and UA• 2012 Pilot, 14 states, selected counties• 2013 expansion to larger area; added wheat,

canola, cotton, grain sorghum, and rice• 2014 includes sunflowers, barley, peanuts• Future expansions planned for other crops ranked

primarily by insured value and trend rates

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TA APH – Data Eligibility

• Must be in eligible county/crop (has trend in ADM)

• One or more actual yield in last four years

• Make election by sales closing date (March 15)

• Election made on crop/county basis

• Continuous unless cancelled or terminated by FCIC

• Transferred policies must re-elect


• Must have at least 4 actual yields to be eligible for full adjustment

• Percentage of full trend adjustment:– 4 or more yields in last 12: 100%– 3 yields 75%– 2 yields 50%– 1 yield 25%

• Max trend APH yield can not exceed highest actual yield plus trend (e.g. max actual 190, TA =2, max TA APH = 192)

TA APH – Full Adjustment

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Yields “Counting” Toward Actual

For 1 in 4 determinationA -- actual yieldAY – A but less than 60% TNA – AY did not electPA – prorated productionDA – duplicate actual prodNW -- wgt avgPW – wgt. avgWY – wgt. avgAX – simple avgP – assigned yieldsJ – temporary yield

Receive adjustmentAAYNAPADANW PWWY


Details

• Cups and Floors do not apply to TA APH– Rare case could result in better “floors” than

actual yields adjusted for trend

• T (and S,E,N) yields not adjusted• Yield reductions

– Excessive yield reductions still apply– Reductions in approved APH still apply

• Other restrictions intended to encourage additional accumulation of data

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TA APH yield

• Applicable to Enterprise, Basic, and Optional units

• Does not impact yield database

• TA-APH calculated for each database

• Trend rates updated annually


Trend Adjustment Examples

• Generated with farmdoc Crop Insurance Decision Tool

• Microsoft Excel spreadsheet, annual release, calculates premiums, “what-if” scenarios, historic performance and other features of current programs.

• Available for download in FAST section of farmdoc website.

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www.farmdoc.illinois.edu/cropins/index.asp

10-Year

Consecutive

All Actual

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10-Year

Consecutive

2 non-actual yields

10-Year

Skip

All Actual

9

4-year

Not allactual


Establish Trend Rates

• Based on NASS county and Crop Reporting District yields from 1976 though 2012 in 2014CY.

• County data screens for number of yields, acreage and other quality conditions.

• Fit trends through data with controls for:– Weather

– Geographical weighting (spatial weights)

• Trend rates are capped at 90th percentile or lower based on crop, and statistical properties

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Trend Rates 2014 - Corn

Trend - bu./acre0.00 to 0.880.88 to 1.251.25 to 1.601.60 to 2.002.00 to 2.36No data


Trend Rates 2014 - Soybeans

Trend - bu./acre0.00 to 0.260.26 to 0.400.40 to 0.460.46 to 0.500.50 to 0.57No data

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Trend Rates 2014 – Spring Wheat

Trends bu./ac- to 0.20 0.20 to 0.40 0.40 to 0.60 0.60 to 0.80

No data


Trend Rates 2014 - Canola

Trend - lbs./acre0 to 2727 to 3333 to 3737 to 4040 to 42No data

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Premium effects of TA

• Total premium is the same for identical rate yield guarantee given APH or TA-APH

• Use of TA-APH will lower farmer-paid premium at given yield because subsidy levels are lower for higher coverage levels

• Always to advantage to elect TA endorsement if not “on floor”

Risk Subsidies (Percent of Total)

CoverageLevel

Basic,Optional Enterprise

50% 67% 80%

55% 64% 80%

60% 64% 80%

65% 59% 80%

70% 59% 80%

75% 55% 77%

80% 48% 68%

85% 38% 53%


Example of Actual Premiums, Corn

Coverage Bu. Trigger Premium Bu. Trigger Premium

bu/acre $/acre bu/acre $/acre

50% 89 0.51 94.5 0.69

55% 97.9 0.78 104 1.00

60% 106.8 1.22 113.4 1.82

65% 115.7 2.01 122.9 2.97

70% 124.6 3.26 132.3 4.61

75% 133.5 5.74 141.8 8.16

80% 142.4 11.61 151.2 15.26

85% 151.3 22.82 160.7 29.08

APH Yield = 178.0 TA APH Yield = 189.9

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TA-APH Q/A and Summary

• Ongoing efforts by RMA to reflect actual yield within insurance contracts

• Intended to create incentive for accurate data/reporting.

• No impact on premium structure, only on amount of insurance

• Applies to actuals in added land, not to SA-T. PTY not trended.

• No limit on age of records.


TA-APH Q/A and Summary

• Each database treated separately.

• Max TA does not force lower than APH in cases where T-yields are higher than actual.

• 2012 yields are included in estimation of 2014 trends. Weather adjustment mitigated influence on trend.

• Trend ≠ E(level of APH). Trend rates can be high where yields are lower.

• Always room to add Good ideas.

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Questions?

Thanks!Feel free to email questions/comments to:

[email protected]

Visit us on the web at:www.farmdoc.illinois.edu

www.farmdocdaily.illinois.edu


Acres Covered by Crop:

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Growing Program: Total Premium


Total Liability (amount of insurance)

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Total Payments by crop through time


Total Payments by crop through time

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Ratings System Explained in a Nutshell


• Based on a Loss Cost Ratio (LCR) system initiated in 1980s for a single product (65% yield) fixed indemnity-price policy.

• Modified for product types, extended to several dimensions, numerous internal controls, tied to exceptionally complex data through time, but still…

• Idea – each yeart : Losses/liability = ratetthen ave(rates) ×liability = premiums. Over time, premiumsshould equal losses. Loss ratio target =1

• Main components used as rate components: farmer risk relative to county, reference yield, exponent, coverage level differential, and loads for CAT, PP, RP, and QA; and price level, vol. & deviates (correlation) for RP related.

Rating System (Overly)Simplified

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Ratings system - “so how are we doing”?

• Recall Basic Idea:

n

• Loss Ratio Should be equal to 1.0 if rates are correct, rates correct if losses correctly converted to rates.

• Should have no discernible patterns across geography or crops


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Download - TA-APH Yield Endorsement · 1 Understanding the Trend Adjusted APH Yield Endorsement Bruce J. Sherrick University of Illinois September 12, 2013 Mankato, MN

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