Volatility in the simulation
in Chev.Agric
The battle card says it's mainly from indemnity component, because probable yield and premium rate methodologies are usually designed to avoid large year-over-year variations. If it's designed to avoid large variation, why that's the source to bring in volatility in the simulation?
Thanks,
Comments
The simulation has three main components:
Volatility in this sense means the difference between different simulations. Since probable yield and premiums are designed to be stable YoY, then most of the volatility will come from the indemnity component
got it now. thanks a lot!
How can I understand this post with the battlecard below:
Q: production insurance programs - what is the effect of severe loss yrs on rates
A: Indem$ UP
--> ( IndemRt UP & SS load UP (to replenish surplus) )
--> PremRt UP
--> Prem$ UP
If premiums are designed to be stable, then severe loss years should not significantly affect the premium...?
can anyone answer my question above?
Whoops sorry I missed this - Even with a smoothing mechanism a severe loss will affect the premium but not by too much. Stable doesn't mean your premium will never change regardless of experience, it will but just at a slower rate