Risk Management Agency report shows outsize profits for Crop Insurance providers

By Agri-Pulse Staff

© Copyright Agri-Pulse Communications, Inc.

Washington, April 2 – USDA’s Risk Management Agency (RMA) released an update Friday of a study completed by Milliman Inc., which determines a reasonable rate of return for crop insurers participating in the Federal Crop Insurance Program. The update compares current returns to the historical rates of return for those companies. The newly updated report now includes data for 2009 showing that the return on equity during 2009 was 26.4 percent, the second highest return in the past 21 years and more than double the 10.7 percent “reasonable rate of return” for 2009.

Over the past 21 years, the crop insurance companies averaged a 17 percent return when the reasonable rate for that period was 12.7 percent.

RMA contracted with Milliman, Inc., to determine the long-term profitability of the crop insurance industry. The updated historical rate of return and reasonable rate of return represent 21 years of data, the longest historical data set of all current profitability studies.

The complete studies are available online at: www.rma.usda.gov/news/2010/03/marchhistorical-reasonable.pdf and www.rma.usda.gov/news/2009/12/sra.html

The Federal Crop Insurance Corporation reinsures the companies involved in the studies. To participate in the Federal crop insurance program, companies must sign and abide by the Standard Reinsurance Agreement (SRA). The Milliman study’s results will become part of the discussion in this year’s SRA renegotiation between RMA and participating insurance companies.

RMA is discussing the SRA’s third draft with the companies now. RMA plans to complete discussions in April. RMA’s goal is to have the new SRA signed by all parties by the end of June 2010, as provided by the 2008 Farm Bill.

To read a response from the private crop industry, go to: www.agri-pulse.com/20100405P1.asp.

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