Evaluation of Agricultural insurance portfolio in farming and horticultural sub-sectors from the perspective of Markowitz theory: A case study of Khorasan Razavi province

Agricultural production is subject to numerous risks, and agricultural insurance is one of the important risk management tools that can help producers in facing these devastating risks. Therefore, providing insurance services to agricultural producers is essential. However, the provision of insurance services continues when their providers are able to earn a commensurate return on the risk they take. Therefore, choosing the optimal insurance portfolio is very important for the insurer. Accordingly, the main purpose of this study is to evaluate the current insurance portfolio of insurers in Khorasan Razavi province as a sample and to investigate its potential for improvement using Markowitz theory. In this regard, historical data related to risk and return of insurance policies registered in the Agricultural Insurance Fund have been used and the optimal portfolio has been formed within the framework of the mentioned theory and compared with the current portfolio. The results show that the portfolio operated by the insurer is a completely non-optimal portfolio and has a good potential for improvement. Based on these results, it is possible to increase revenue significantly without the need to bear more risk. In addition, if the insurer is willing to take more risk, it can earn much more. Accordingly, such a change from the current portfolio to the proposed portfolio is recommended.