BULLETIN NO.:  MGR-95-026

TO:       All Reinsured Companies
          CFSA Headquarters, Program Delivery, Field Operations
          All Risk Management Field Offices
          
FROM:     Ken Ackerman
          Acting Deputy Administrator

SUBJECT:  Reinsured Company/MGA Definition Clarification


The Consolidated Farm Service Agency, Office of Risk Management (CFSA/ORM)
is concerned that the administration of two or more Standard Reinsurance 
Agreements (SRA) by a single reinsured company or managing general agency 
(MGA), creates a moral hazard and could expose CFSA/ORM to adverse selection 
through gain and loss manipulation.  This vulnerability may undermine the 
credibility and actuarial soundness of the multiple peril crop insurance 
(MPCI) reinsurance program, making it necessary to define MPCI administrative
processes and organizational structures.

A reinsured company is an insurance company whose MPCI book of business, 
issued in the name of the reinsured or its policy-issuing company, is 
reinsured by the Federal Crop Insurance Corporation under the SRA. An MGA may 
be the reinsured company or an administrative business entity authorized by a 
reinsured company to produce and service the MPCI book of business, written 
by the reinsured company and its policy-issuing companies. The reinsured 
company must have its own staff, management, escrow account, loss adjusters
and/or agreements, agency agreements, field offices, regional offices, 
service centers, data processing systems, forms and home office, hereafter, 
referred to as administrative operation.  If the reinsured company uses an 
MGA, the MGA must maintain its own administrative operation. An insurance 
group may have more than one company within the group hold an SRA if each 
maintains a separate administrative operation and there is no concurrence or
collusion between the companies. CFSA/ORM will allow an MGA to have an 
agreement with only one reinsured company during any given reinsurance year. 

CFSA/ORM will review and evaluate each 1996 SRA/Plan of Operation to 
determine whether the administration and delivery of MPCI is in compliance 
with this bulletin. If  CFSA/ORM finds a reinsured company is not in 
compliance with this bulletin, they will be notified of the violation and a 
notice of termination will be issued in accordance with Section V.I. of the
SRA.

Questions concerning this bulletin should be addressed to E. Heyward Baker 
or your Account Executive at (202) 254-8245.