AIR Worldwide Corporation (AIR) has announced that Bermuda reinsurer Tokio Millennium Re Ltd. has licensed the AIR Multiple Peril Crop Insurance (MPCI) model for use in AIR's CATRADER®, the industry standard application for analysing catastrophe reinsurance and insurance-linked securities.

"We have been using AIR's scientifically-based MPCI model for the last two years on a service-basis," said David McComas, CCRA, vice-president of risk management and modeling at Tokio Millennium Re. "Now that it is available in CATRADER, we can more efficiently integrate model results into our in-house workflow and combine the losses with the rest of our portfolio."

The AIR MPCI model uses detailed weather observations over the course of past growing seasons along with the resulting crop yields to develop a current crop yield probability distribution for each modeled crop in each county, which is more accurate than other modeling approaches.

For major crops in the US, the model generates a catalogue of 10,000 potential year-end outcomes, including crop yields at county resolution and individual crop prices. The AIR crop event catalogue captures the yield correlations between crops and between neighbouring counties to capture the effects of widespread weather events, such as droughts. Crop insurance policy terms are applied to the modeled yield and price scenarios to quantify gross insured losses. The model also accounts for the Standard Reinsurance Agreement (SRA) provided by the US Government to estimate retained losses for the crop insurer.

"The AIR model addresses significant weaknesses in traditional crop models," said Dr. Oscar Vergara, senior account executive at AIR Worldwide. "It accounts for the effect of weather, technology improvements, changes in the policy types and their market penetration, and changes in the SRA program to provide the most accurate probabilistic estimate of potential losses."

AIR's crop model results are used by leading reinsurers to analyse reinsurance submissions from the MPCI programme. Major crop insurers, representing 50 percent of the MPCI premium base, also utilise AIR MPCI model results to assess policy risk and allocate policies to the various risk sharing funds available in the SRA programme.