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Reinsurance agreements signed by 16 private insurance companies

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WILLMAR -- Officials from the U.S. Department of Agriculture recently announced that they had received signed 2011 Standard Reinsurance Agreements from all 16 private insurance companies who participated in the federal crop insurance program during the 2010 crop year. The receipt of the signed agreements formally ends the negotiation process that has been under way since December 2009.

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The agreements outline the new terms, roles and responsibilities for both the USDA and the insurance companies that administer the federal crop insurance program. The 2008 farm bill authorized USDA to renegotiate the agreement effective for the 2011 crop year.

According to officials from USDA's Risk Management Agency, the new agreement will provide $6 billion in savings. Approximately $2 billion in savings will be used to support high-priority risk management and conservation programs. The remaining $4 billion will help reduce the national debt.

During the negotiation process, Secretary of Agriculture Tom Vilsack received a letter signed by 16 senators expressing their concerns regarding the U. S. Department of Agriculture's final draft of the new crop insurance agreement.

One of the concerns raised by the senators was the constraints and unknown impact that the $6 billion in proposed cuts over a 10-year period would have on baseline spending for the farm bill.

The senators also questioned the appropriateness of including in the agreement a provision that essentially caps the commissions paid to crop insurance agents.

The new agreement generally maintains the current administrative and operating subsidy structure for crop insurance companies and agents. However, the agreement limits the level of payments that the insurance industry can receive because of spikes in commodity prices.

The agreement does include an inflation factor and special consideration for new business, therefore allowing commissions to increase reasonably over the length of the agreement.

Under the final draft agreement, the Risk Management Agency has lowered the projected average long-term return for the companies to about 14.5 percent. However, the agency will increase the return in historically underserved states to provide additional financial incentives for companies that provide insurance policies in such states.

The agency will also reinstate individual state loss protection for the more risky policies, thus providing greater protection for reinsurance companies.

Due to significant increases in commodity prices in recent years, annual insurance industry payments have more than doubled from $1.8 billion in 2006, to an estimated $3.8 billion in 2009. Meanwhile, the number of total policies decreased from 2000 to 2009.

In the process of renegotiating the Standard Reinsurance Agreement, USDA contracted with Milliman Inc., an internationally known company, to review historical rates of return and determine a reasonable rate of return for the crop insurance industry.

The Milliman analysis shows that over the past 21 years, the crop insurance companies averaged a 17 percent return, when the average reasonable rate for that period was 12.7 percent.

Deadline is Aug. 2 for FSA Committee nominations

The deadline to submit nominations for the Farm Service Agency's 2010 county committee election is Aug. 2.

Eligible voters can nominate, by petition, candidates of their choice. Nomination forms are available at county FSA offices or online at: www.fsa.usda.gov.

The agency is especially interested in receiving nominations of individuals that represent minority groups, including women.

Election ballots will be mailed to all eligible voters by Nov. 5. Candidates elected to the county committee will serve a three-year term beginning Jan. 1, 2011.

USDA finalizes new standards for ground beef

New and tougher standards have been implemented for all ground beef purchased for USDA's numerous federal food and nutrition assistance programs, including the National School Lunch Program.

The new standards will apply to ground beef contracts awarded on or after July 1.

In addition to continuing a zero tolerance for E. coli O157:H7 and salmonella, the new standards tighten microbiological testing protocols and microbiological limits, while also increasing sampling frequency.

Also, any vendor classified by USDA as having a long-term poor safety record will be considered an ineligible vendor until a complete cause-and-effect analysis is completed.

Wes Nelson is executive director of the USDA Farm Service Agency in Kandiyohi County.

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