ABSTRACT
The establishment of a multi-level compensation mechanism for catastrophic risk is a critical issuefor the sustainable development of China’s agricultural products price insurance.But the bottleneck problem which is to define the optimal boundary of government intervention is still unsolved. Therefore, this paper aims to provide a quantitative methodology of measuring the optimal catastrophic risk sharing ratio between government and market from the perspective of actuarial sciences and insurance economics. An empirical case showed that the payment rate of egg price insurance in Beijing city would top 958%, suffering the impact of a once-in-a-hundred-years catastrophic event.In this scenario, the optimal catastrophic risk sharing ratio is 172% between government and insurer, which means that the maximal indemnity of the insurance company is 172% of the premium in the month when the catastrophic event occurs, and the government begins to pay the rest of the indemnity over the 172% of the premium. Meanwhile, the government currently has a ceiling of just 261% of the premium on the rest of the indemnity payment in order to avoid subjecting itself to the “financial subsidies trap”. Briefly, the indemnity responsibility undertaken by the government or the optimal boundary of government payment dropped into the interval from 172 % to 261% of the premium. The rest of risk and indemnity responsibility over the upper limit (261% of the premium) should be dispersedthrough the capital markets. This research is a profitable attempt to construct the mechanism of agricultural insurance catastrophic risk decentralization supported by the government.
