Crop Insurance Today May 2015 - (Page 15)

Figure 13. Share of Insured Acres Covered at 70% or Higher 90 80 Share of Insured Acres, % 70 60 50 40 30 20 10 Accounting for all revenues and costs leaves company pretax net income close to zero over 2011-2014. The public cost of the crop insurance program can be calculated using program outlays and revenues and are equal to: gross indemnities less farmer-paid premiums, plus administrative and operating expense (A&O) payments made on the producers' behalf to the companies, plus company underwriting gains. For the 2014 crop year thus far, net indemnities of $5.1 billion plus A&O payments of about $1.4 billion bring these two components of program cost to $6.5 billion. Adding estimated company underwriting gains would put the program cost in a range of $7.6 billion. This figure compares favorably with costs of $9.7 billion in 2013 and the record-high $13.5 billion resulting from the historic 2012 drought. Final costs for 2014 will depend on 201 2 201 3 201 4 9 201 0 201 1 200 6 200 7 200 8 200 3 200 4 200 5 200 0 200 1 200 2 200 6 0 199 294.6 million acres were insured, slightly below the record-high 296.1 million set in 2013. Lower prices and less corn acreage probably accounted for the decline, however, total acreage planted to principal crops increased in 2014, limiting the decline in insured acres. Despite the decline in insured acres, producers continued to buy higher coverage levels in 2014, with the share of acres covered at 70 percent or higher rising from 82.1 percent in 2013 to 83.5 percent in 2014 (Figure 13). The program loss ratio on April 20, 2015 stood at 0.89, the fourth highest in the last decade. Table 4 provides the standard measures used to comprehend the scope and performance of the crop insurance program. The generally smaller sizes of the program components measured in dollars in 2014 are driven mainly by the reduced prices for major field crops. Gross underwriting gains and losses of the program are shared between FCIC and the insurance companies, as determined by the provisions of the Standard Reinsurance Agreement (SRA). For 2014, the gross underwriting gain for the business recorded to date is $1.14 billion and would be the first gain in three years. The final estimated gross underwriting gain is expected to result in an underwriting gain that is about 12 percent of retained premium of the companies. While this rate would be an improvement over the past couple of years, company underwriting gains as a percent of retained premium during the 2011-2014 life of the current SRA would average in the range of five to six percent, remaining well below the level expected when the SRA was negotiated. Furthermore, underwriting gains are not profits but a component of the companies' pre-tax revenues. final figures for indemnities, farmer-paid premiums and company underwriting gains, but the total cost is likely to wind up a bit less than the expected long-run level of $7.9 billion shown in the January 2015 projections of the Congressional Budget Office (CBO) for the life of the 2014 Farm Bill. The changes in insured acres of major crops for 2014 are shown in Table 5. The changes in insured acres mainly reflect the shifts in planted acres. While planted acres of principal crops increased by 1.9 million in 2014, insured acres fell by 1.5 million. Part of this discrepancy in direction is explained by the 5.9-million-acre drop in corn insured acres which exceeded the 4.8-million-acre decline in corn planted acres. Also, soybean plantings were up by 6.9 million acres while insured acres grew by a lesser 6.3 million. The 1.5-million-acre decline in insured acres of Table 4. Federal Crop Insurance Program Performance, Gross Basis1 POLICIES GROSS CROP UNITS WITH FARM-PAID INSURED LOSS WITH LIABILITY PREMIUM INDEMNITY UNDERWRITING YEAR PREMIUM PREMIUM ACRES RATIO PREMIUM GAIN Number 1,191 1,148 1,138 1,149 1,172 1,140 1,152 1,174 1,224 1,207 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Million Dollars 3,022 44,259 3,949 1,612 2,942 49,919 4,580 1,898 2,966 67,340 6,562 2,739 3,023 89,897 9,851 4,160 2,729 79,548 8,951 3,524 2,572 78,085 7,595 2,883 3,321 114,197 11,971 4,508 3,444 117,129 11,113 4,136 3,580 123,770 11,804 4,510 3,575 109,814 10,061 3,853 Million 2,367 3,504 3,548 8,680 5,222 4,254 10,867 17,438 12,071 8,925 1,582 1,076 3,015 1,171 3,729 3,341 1,104 -6,325 -266 1,135 246 242 272 272 265 256 266 283 296 294 0.60 0.77 0.54 0.88 0.58 0.56 0.91 1.57 1.02 0.89 1 Data as of 4/20/2015 Source: RMA Summary of Business CROPINSURANCE TODAY® 15

Crop Insurance Today May 2015

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