BULLETIN NO.: MGR-98-018 TO: All Reinsured Companies All Risk Management Field Offices All Other Interested Parties FROM: Kenneth D. Ackerman /s/ June 30, 1998 Administrator SUBJECT: 1998 Research Act and Amendment No.1 to the 1998 SRA BACKGROUND: The 1998 Research Act. On June 23, 1998, the Agricultural Research, Extension and Education Reform Act of 1998 (1998 Research Act) was signed by the President. Subtitle C of the 1998 Research Act requires that the Federal Crop Insurance Corporation (FCIC) revise current provisions of the 1998 Standard Reinsurance Agreement (SRA) governing Administrative and Operating (A&O) Expense Subsidy, administrative fees, and loss adjustment expense reimbursement. The 1998 Research Act mandates the following specific changes: 1. Administrative Fees Paid By Producers (See Attachment A): A. The administrative fees paid on catastrophic risk protection (CAT) policies will consist of a "basic fee" and an "additional fee." The basic fee is the greater of $50 or 10 percent of the net book premium for each CAT eligible crop insurance contract. The additional fee is $10 for each eligible crop insurance contract. B. The maximum limit on the amount of administrative fees paid by a producer purchasing CAT coverage has been eliminated. C. For producers purchasing an additional coverage crop insurance contract, the administrative fee of $10 has been increased to $20 for each eligible crop insurance contract. D. The revised administrative fees, including the basic and additional fees, will apply to each crop insurance contract with a sales closing date after July 1, 1998. E. All administrative fees collected by the Companies on the affected policies will be remitted to FCIC in accordance with the SRA. 2 2. A&O Expense Subsidy paid by FCIC: A. The A&O Expense Subsidy is reduced to not more than 24.5 percent of net book premium for the 1999 and subsequent reinsurance years. B. Additional coverage level policies that received A&O Expense Subsidy less than 27 percent of net book premium in the 1998 reinsurance year will receive an A&O Expense Subsidy that is proportionally reduced for 1999 and subsequent years. 3. CAT Loss Adjustment Expenses FCIC can pay no more than 11 percent of the total net book premium for eligible CAT crop insurance contracts as reimbursement for CAT loss adjustment expenses. Coverage Levels Greater than 75 Percent. On May 5, 1998, the FCIC Board of Directors authorized coverage levels up to 85 percent of a producer's recorded or appraised average yield for selected crops in selected counties beginning with the 1999 crop year. The rate factors for wheat are currently available through the Reporting Organization Server. Coverage levels greater than 75 percent will be available for corn and soybeans in 66 counties in Illinois, Indiana, and Iowa and for wheat in 20 counties in Idaho, Oregon, and Washington. The crops and counties where coverage levels greater than 75 percent will be available are: Corn/Soybeans Illinois - Bureau, Champaign, Coles, De Witt, Douglas, Ford, Fulton, Grundy, Henderson, Henry, Iroquois, Kankakee, Kendal, Knox, La Salle, Lee, Livingston, Logan, McDonough, McLean, Macon, Marshall, Mason, Menard, Mercer, Moultrie, Peoria, Piatt, Putnam, Rock Island, Sangamon, Stark, Tazewell, Vermilion, Warren, Whiteside, Will, Woodford, Indiana - Benton, Carroll, Cass, Clinton, Fountain, Jasper, Montgomery, Newton, Pulaski, Tippecanoe, Warren, White, Iowa - Benton, Cedar, Clinton, Des Moines, Henry, Iowa, Jefferson, Johnson, Jones, Keokuk, Linn, Louisa, Muscatine, Scott, Wapello, Washington Wheat Idaho - Latah, Lewis, Nez Perce, Oregon - Gilliam, Morrow, Sherman, Umatilla, Wallowa, Wasco, Washington - Adams, Asotin, Benton, Columbia, Franklin, Garfield, Klickitat, Lincoln, Walla Walla, Whitman, Yakima BULLETIN NO.: MGR-98-018 3 The A&O Expense Subsidy for all eligible crop insurance contracts with coverage levels greater than 75 percent varies by insurance plan and is specified in Amendment No.1 (Amendment). Limited Resource Farmers On June 10, 1997, "Managers Bulletin MGR-97-023, 1997 Insurance Coverage for Limited Resource Farmers" was issued to advise all insurance providers to ensure that all agents were informed about procedures for waiving administrative fees for limited resource farmers. RMA also requested insurance providers to identify all 1996 limited resource farmer policyholders who did not have a 1997 policy. They were to ensure that an agent contact those limited resource farmers who were not continuing crop insurance coverage. RMA intended this contact to be an opportunity for the agent to explain the procedures to limited resource farmers for certifying their status and to encourage them to continue crop insurance coverage by processing a waiver of administrative fees. RMA urges all insurance providers to continue their efforts to encourage crop insurance agents to work with limited resource farmers to ensure they are aware of all program benefits under the Federal crop insurance program. RMA will track the continued participation of limited resource farmers and carefully monitor the service provided to them. If a problem is found, we, in consultation with our private sector partners, will take appropriate action to ensure that limited resource farmers are properly serviced. ACTION: To implement the 1998 Research Act legislation, the 1998 SRA is amended as follows: 1) Section III.A.2.a,b,c,d, is revised to reduce A&O Expense Subsidy from 27 percent to 24.5 percent and make proportional reductions in A&O Expense Subsidy for policies receiving less than 27 percent during the 1998 reinsurance year. 2) Section III.B. is revised to reflect changes to the amounts and types of administrative fees collected from producers and stipulate the Company's responsibility for remitting such fees. 3) Section IV. is revised to limit the amount paid to a Company for loss adjustment on CAT policies to 11.0 percent of the net book premium computed for the CAT eligible crop insurance contract. 4) Section III.A.2.e is revised to specify the A&O Expense Subsidy to be paid for policies with coverage greater than 75 percent of the recorded or appraised average yield. Attached are two copies of the Amendment to the 1998 SRA which must be executed for FCIC to provide reinsurance and subsidy in the 1999 and subsequent reinsurance years. Each copy must be signed as an original and returned to FCIC at the address shown below via overnight mail by July 10, 1998. The Amendment should be signed by the person authorized by the Company's Board of Directors to enter into the SRA. OVERNIGHT MAIL: USDA/Risk Management Agency Reinsurance Services Division E. Heyward Baker, Director 1400 Independence Avenue, SW Stop Code: 0804 Room 6727-South Building Washington, DC 20250 Phone: (202) 720-4232 Failure to execute the amendment will terminate your Standard Reinsurance Agreement as of the end of the 1998 reinsurance year (June 30, 1998). Attachments: RMA:RSD:DMiller:as:06/30/98/ 720-9830:h:\wpdoc\99sra\MGR98018.WPD