SRA FINAL STAGES

WASHINGTON, May 28, 2004

• The Risk Management Agency (RMA) has released the third draft of the Standard Reinsurance Agreement (SRA). This draft reflects RMA’s best efforts to respond to the comments, concerns, and suggestions of each company within the Federal crop insurance program.
• Risk management tools are made available to farmers and ranchers through a unique private-public partnership – the private insurance companies and RMA that acts as both regulator and reinsurer. The SRA is the contract between the companies and RMA that sets the terms and conditions under which the risk products are delivered and the amount of compensation to the companies for their services.
• This is a negotiation. As such, both parties should negotiate in good faith and be willing to compromise.

• The delivery system is not in danger. This SRA will strengthen the crop insurance program for farmers and improve accountability for companies. The Department of Agriculture is doing everything it can to protect and improve Federal crop insurance.
• Companies have a variety of choices to absorb these modest reductions through administrative, operating, or marketing activities. These choices are up to the companies -- as they should be.

• The SRA will not be the cause of consolidation in the crop insurance industry. Throughout the history of Federal crop insurance, including the recently canceled SRA, companies have frequently entered and exited the program, similar to the continual changes in many financial services sectors.
• RMA is proposing to take on significantly more of the risk in many states so companies can continue to provide service to farmers in high-risk areas.
• Further, RMA is pleased that additional companies not currently in the program are expressing a serious interest in joining under the terms of this proposed SRA. They are doing so knowing and agreeing to the third draft. This is yet another indication that this program is sound and still presents attractive opportunities for insurance providers.

• RMA has worked diligently and cooperatively with the insurance companies throughout these negotiations to address their concerns. To date, RMA has held over 30 in-depth, individual meetings with companies and carefully reviewed every public comment it has received via its web site – www.rma.usda.gov.
• With each draft, RMA has responded to industry concerns and has made significant changes in cost savings, the balance of risk sharing particularly in high-risk areas, and appropriate regulatory oversight provisions. The annual cost savings of $36 million will be over two years, which gives companies time to adjust. RMA reduced these savings from $75 million in the first SRA draft and $41 million in the second draft. RMA has gone a long way in compromising during these negotiations.
• Several companies have recently agreed in principle, including the largest company in the program, to sign this SRA with a few, minor adjustments. With those indications, RMA is confident that it can enter the upcoming reinsurance year, July 1, 2004, with no interruption in crop insurance service.
• The Department of Justice is monitoring the negotiation process to assure that antitrust guidelines are followed. RMA has been very careful in its behavior as have many others.