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FCIC Manager's Report

FCIC Manager's Report

May 17, 2000

1. Legislative Update

2. Summary of Business 1999/2000 Loss Assessment (as of 05/04/00)

a. Summary of Business, 1999. The 1999 book of business and program participation numbers are complete at this time with only late and corrected claims continuing to create minor changes in the crop year statistics. To date, nearly $30.8 billion dollars in liability have been reported on approximately 196 million acres of crop land representing 1,286,498 crop policies. Indemnities in the amount of nearly $2.391 billion have been paid out to date. Acreage insured under additional coverage policies increased by about 23 million acres with a decrease in CAT acres insured of about 8 million acres. The 1999 liability represents an increase of more than 10 percent from 1998. The current 1.04 loss ratio is above the Regional Offices (RO) estimates for the year which were projected at 0.99.

b. Preliminary Summary of Business, 2000. Although the bulk of spring acreage reports have yet to be filed, FCIC is expecting the $400 million 2000 crop insurance premium discount incentive to continue to assist producers in obtaining higher levels of coverage this year. The current Summary Report for 2000 indicates that only 215,000 crop policies have been reported covering 30 million acres. Liability is nearly $7 billion and more than $94 million has been paid out for 2000 crop losses to date.

c. Current Loss Assessment. RMA is maintaining a strategy of monitoring loss situations closely as they develop to ensure uniformity between insurance providers and equal treatment of policyholders. This strategy includes a continuing emphasis on all parties to the crop insurance program of the need to assess requests for policy and procedural changes for their impact on the larger program issues including funding, actuarial soundness, simplification, and the contractual obligations between FCIC, insurance providers, and producers. With major legislation pending, it is essential that RMA and the insurance providers work in tandem to address any issues that may arise.

Drought continues to appear to be the highest risk for crop failure in 2000. An active hurricane season is also predicted for this year.

Regional Drought Conditions

Midwest: April saw drier than normal conditions across a large area of the Midwest. Parts of northeastern and southeastern Minnesota, central Iowa, and most of Missouri had less than 50% of normal precipitation for the month. RMA continues to monitor planting in this region. Most of the Corn Belt experiencing drought conditions received only light amounts of rain during the past week.

South Central and Southeast: A major storm system April 30 and May 1 produced significant rainfalls across Oklahoma and the eastern half of Texas. As a result of these rains and good year-to-date totals, some areas in East Texas have improved relative to drought indicators, however, with long-term drought concerns remain.

West: Little or no precipitation fell across the existing drought and dry regions in the western states during the past week. Extreme drought remains in western Texas, New Mexico, and Arizona.

Hawaii: Little precipitation fell during the week across the Hawaiian Islands and long-term drought conditions continue to cause adverse agricultural impacts and the potential for wildfires in parts of the state.

d. The RO's are providing current condition reports to the Under Secretary for Farm and Foreign Agricultural Services on a routine basis. The FCIC Board of Directors has been added to the list of recipients for copies of this report which provides current details on problem areas noted by these offices.

3. Crop Insurance Sales

Despite a smaller premium discount for the 2000 crop year, early national sales indicators show double-digit increases in the number of policies, insured acres, liability, premium and additional coverage (see attached). Dry conditions, disaster payment linkage, and cotton rate reductions are likely contributors to strong sales.

4. Discontinuance of the Price Discovery for Crop Revenue Coverage Durum Wheat in Arizona and California for the 2001 Crop Year

American Agrisurance, Inc. (AmAg) has requested discontinuance of Crop Revenue Coverage for fall durum wheat in the states of Arizona and California effective with the 2001 crop year. Due to the lack of an adequate price discovery methodology they do not feel they can continue to maintain the offer for fall durum wheat in the two states. An accurate price discovery methodology is necessary in order to provide an accurate calculation of the expected market price at the time of planting and the time of harvest. AmAg uses the Minneapolis Grain Exchange Durum Wheat Contract for spring durum wheat to calculate these prices but have not been able to find such a market for fall durum wheat. Effective for the 2001 crop year, RMA will remove the availability of such coverage in Arizona and California.

5. Salmon Feasibility Study Update

As requested by Alaska Senator Ted Stevens, the Risk Management Agency (RMA) is initiating a feasibility study to research the possibility of providing an actuarially sound risk management program for the Alaskan salmon fishing industry. The feasibility study will focus on the Bristol Bay commercial fisheries in the southwestern part of the State. It is anticipated that the study will be completed during fiscal year 2000.

6. Pilot Watermelon Crop Insurance Program -- Suspension

The Risk Management Agency (RMA) initiated the pilot Watermelon Crop Insurance program for the 1999 crop year. After substantial reports of program abuse and other problems, RMA suspended the pilot program for the 2000 crop year and provided public notice to that effect in the Federal Register on September 13, 1999. The notice also requested comments regarding the suspension. After evaluating comments, and pending further research, the decision to suspend the program was finalized in a decision memorandum signed by the Agency Administrator on March 24, 2000.

Comments received from producers, growers, packers, industry and marketing board representatives alleged the pilot program may have contributed to program abuse, depressed market prices and was generally not acceptable to producers. RMA received 79 responses during the official comment period. Fifty-two respondents indicated they do not want a watermelon crop insurance program of any kind and 27 respondents stated that some sort of risk protection program was needed. Six respondents were watermelon policyholders of which three indicated they did not want a program.

The National Watermelon Association and the National Watermelon Marketing Board (and their constituent regional associations) are on record as opposed to any RMA watermelon program.

7. Appointment of Assistant Secretary of the Corporation

Effective May 17, 2000, Ms. Damaris Falero-Kendall is appointed as an Assistant Secretary of the Federal Crop Insurance Corporation (Corporation), to act, in the absence of the Secretary of the Corporation, as Secretary, with all the powers and duties ascribed to that office, and to perform such other duties as may be prescribed by the Secretary to the Corporation. Ms. Falero-Kendall is presently serving as a Staff Assistant to the Program Support Staff.

This appointment is made under article V, section 5 of the Bylaws of the Corporation which authorizes the Manager of the Corporation to appoint such other officers as may be necessary for the transaction of the business of the Corporation. Historically, the Corporation has had an Assistant Secretary to assume the duties and powers of that office in the absence of the Secretary and to assure the continuity of service and support provided by that office.