All of the 16 private insurance companies that participate in the federal crop insurance program last year have signed USDA's Standard Reinsurance Agreement, a document that the department says will cut the program's costs by $6 billion. Of that amount, $4 billion will go toward reducing the federal deficit and the remaining $2 billion will be used to fund "high-priority risk management and conservation programs," according to a USDA statement.
Long-time farm bill watchers are skeptical regarding the uses to which the $2 billion finally will be put, with many predicting that the House and Senate Agriculture committees will use it for purposes other than the ones outlined by USDA.
The final SRA was subject to negotiations between USDA and the insurance companies and resulted in several drafts before the final one was submitted for company signatures.
The 2008 farm bill authorizes the department to renegotiate the agreement effective for the 2011 crop year. USDA determined that renegotiation was necessary because due to "significant increases in commodity prices in recent years, annual insurance industry payments more than doubled from $1.8 billion in 2006 to an estimated $3.8 billion in 2009 based on the terms of the previous SRA . Meanwhile, the number of total policies decreased from 2006 to 2009."
In preparation for the negotiations, the department contracted with an international actuarial consulting firm to review historical rates of return and determine a reasonable rate of return for the crop insurance industry. That analysis shows that over the past 21 years, the crop insurance companies averaged a 17.0 percent return when the average reasonable rate for that period was 12.7 percent, according to USDA.
