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USDA announced that its Risk Management Agency (RMA) has received signed copies of the new Standard Reinsurance Agreement (SRA) from all 16 crop insurance companies participating in the program during the 2010 crop year.
The rewrite of the SRA, which defines the relationship between private insurers and the federal government, was authorized in the 2008 Farm Bill and has been under negotiation since December.
USDA released its final SRA draft in June, allowing for only technical changes during a 30-day review period. The companies were required to sign the agreement before writing policies for the 2011 crop year.
The final agreement is projected to provide $6 billion in budget savings over 10 years. Of the $6 billion, $4 billion is to be returned to the federal coffers for deficit reduction and the remaining $2 billion will go to conservation and risk management programs. It is still unclear what impact these reductions will have on the 2012 Farm Bill budget baseline, a key concern of Members of Congress looking to rewrite federal farm policy and agriculture groups including NAWG.
USDA said the final agreement will generally maintain the current administrative and operating (A and O) reimbursement structure but remove the possibility of windfall government payments based on high commodity price spikes by limiting the level of A and O payments.
Still, the agreement is expected to reduce the companies’ average long-term return to about 14.5 percent, and Bob Parkerson of the National Crop Insurance Services told Bloomberg news this week that the new SRA will lead to industry consolidation.
Much more information about the new SRA is available at http://www.rma.usda.gov/news/2009/12/sra.html.
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