STANDARD CROP INSURANCE AGREEMENT TO BE UPDATED FOR 2005 REINSURANCE YEAR

Contact: James Callan (202) 720-8812
Raegan Weber (202) 720-6200

WASHINGTON, Dec 31, 2003 - USDA's Federal Crop Insurance Corporation (FCIC) today announced that it will renegotiate the standard agreement that defines the terms of reinsurance between it and the companies that provide insurance to the nation's farmers and ranchers.

"The Risk Management Agency (RMA) will ensure this renegotiation does not affect the availability and service of crop insurance that producers rely upon in their farming operations," said RMA Administrator Ross J. Davidson, Jr. RMA administers the Federal crop insurance program on behalf of FCIC.

The Agricultural Risk Protection Act of 2000 (ARPA) envisioned renegotiation once during the 2001 through 2005 reinsurance years at the discretion of FCIC. The existing agreement now has been in place for over five years during which much has changed in the industry including considerable expansion in the number and nature of insurance products offered, the reinsurance markets, financial stability of some companies and the additional subsidies to producers flowing from ARPA. The Agricultural Risk Protection Act of 2000 placed expanded responsibilities on RMA to ensure program integrity, market coverage, delivery system viability and new product availability. All of these conditions and changes, taken together, suggest that a timely revision of the agreement is necessary to strengthen the crop insurance program.

The Risk Management Agency indicated it will begin renegotiation of the Standard Reinsurance Agreement (SRA) and Aquatic Crop Reinsurance Agreement (ACRA) (collectively, the "agreement") to make a new agreement effective July 1, 2004, the beginning of the 2005 reinsurance year. RMA has prepared extensively during the past year for the renegotiation, including with reinsurers, the companies, other federal agencies, and other interested parties. The overall objectives of the renegotiation include:

• Create a dynamic agreement capable of adapting to future needs.
• Create simplicity and efficiency in the insurance program.
• Strengthen program integrity and ensure long-term program and delivery system viability.
• Secure meaningful cost savings and efficiencies throughout the system.

RMA also indicated that it was providing a first draft of the proposed SRA to the companies. "We are pleased to provide a draft to the companies for their consideration as we begin this important process," said Mr. Davidson. He added, "We look forward to working together with the insurance providers and other stakeholders to develop an improved SRA. The growing importance of effective risk management to American agriculture requires that we develop a stronger foundation for providing effective tools to our farmers and ranchers."

FCIC is committed to providing widely available and effective risk management tools for America's diverse farm sector through a fair, effective, and sound delivery system. The development of an improved agreement is intended to meet that commitment.