A standard reinsurance contract (SRA) between the USDA and private companies provides for cost reimbursements and risk sharing by the government, including the conditions under which the government provides subsidies and reinsurance (i.e. insurance for insurance companies) to eligible plant insurance contracts sold or reinsured by insurance companies. The SRA therefore plays a central role in determining the costs of the program. The SRA has no impact on insurance premiums paid by farmers, which are based on the risk lines and legal lines of the RMA. The standard reinsurance contract is a financial cooperation agreement between FCIC and each of the approved plant insurance companies for the provision of eligible crop insurance contracts. It comes into effect with the execution and approval of the company`s business plan for the relevant reinsurance year. The project also made substantial changes to the technical provisions of the insurance. First, the number of reinsurance funds under the project would decrease at the operational level. Under the proposed contract, companies would either pay the “residual fund” for riskier policies (as the insurance companies call them) or the “commercial” fund for less risky policies. This would eliminate the Marginal Development Fund and the three subfunds of the trade fund under the SRA 2010 (see “Significant provisions in the standard reinsurance contract for 2010” above).
It is important that the project make the residual fund a federal fund, unlike the risk fund currently allocated, which is state-based. Consolidation of risk policies into a single national pool, which is shared by all plant insurance companies, would allow USDA to expect the evolution of losses for the residual fund to be more stable than for the risk fund currently allocated. A single company`s share of the fund would depend on its share of total premiums. The Standard Reinsurance Contract (SRA) is a financial cooperation agreement between FCIC and each of the approved insurance companies called AIPS to honour eligible plant health insurance contracts for farmers and ranchers. It defines and regulates the commercial and financial relationships between FCIC and IPAs, including the conditions under which FCIC provides reinsurance activities for eligible contracts sold by MANAGERs. Another industry problem is “regulatory risk.” Industry believes that the proposal would impose issues such as data disclosure and other activities, but the draft agreement does not specify the procedures governing these measures. There is a concern that companies will be subject to severe penalties, including the loss of refunds and/or reinsurance in the event of non-compliance.