USDA's Risk Management Agency (RMA), which administers the Federal crop insurance program, recently released the first draft of a proposed new Standard Reinsurance Agreement between the Federal Crop Insurance Corporation and the crop insurance companies which deliver the program nationally. The 2008 Farm Bill authorized RMA to renegotiate the agreement which was last negotiated for 2005.
RMA expects to notify the companies at the end of 2009 that the current agreement will be canceled as of June 30, 2010, paving the way for this new agreement to be signed by all parties.
The proposed new Standard Reinsurance Agreement includes six primary objectives which RMA hopes to obtain in renegotiation of the agreement: (1) Maintains producer access to critical risk management tools; (2) Align Administrative and Operating (A&O) subsidy to insurance companies closer to actual delivery costs; (3) Provide a reasonable rate of return to insurance companies; (4) Protect producers from higher costs while equalizing reinsurance performance across States to more effectively reach under-served producers, commodities and areas; (5) Simplify provisions to make the SRA more understandable and transparent; and (6) Enhance program integrity.
In preparation for these negotiations, RMA contracted with an internationally known company, Milliman Inc., to review historical rates of return and determine what a reasonable rate of return is for the crop insurance industry. See the full oneline report. Also, view the USDA Press Release for more details.