USDA's Risk Management Agency, which administers the Federal Crop Insurance program, has released the final draft version of a new Standard Reinsurance Agreement, which details the new terms, roles, and responsibilities for both USDA and insurance companies that participate in the Federal Crop Insurance Program. At the same time the Agency claimed a $6 billion savings through this action. A third of the savings will support high priority risk management and conservation programs.
The final draft agreement generally maintains the current Administrative and Operating subsidy structure, but removes the possibility of windfall government payments based on high commodity price spikes by limiting the level of A&O payments that the industry can receive. However, an inflation factor and consideration for new business is included so the maximum payment may reasonably increase over the length of the agreement.
The agreement lowers the projected average long-term return for the companies to about 14.5%. Meanwhile, RMA will increase the return in historically underserved states to provide additional financial incentives for companies to write business in these states. The agency also returned to individual state stop loss protection for the more risky business, thus providing greater reinsurance protection for companies.