The financial performance of the crop insurance industry since the negotiation of the financial terms of the 2011 Standard Reinsurance Agreement (SRA) has been poor. Returns are far below the levels expected at the time of the negotiation and well short of a reasonable return on capital. Several factors account for this outcome. Despite higher acreage covered since 2011, premium dollars have declined from $12 billion in 2011 to less than $10 billion in 2015, reflecting lower market prices and reduced premium rates. During this period, indemnities reached record high levels caused by widespread drought in the Corn Belt and Southern Plains and a sharp drop in commodity prices during 2013. Total claims exceeded total premiums in 2012 and 2013, the first occurrence of two consecutive years with a net loss since 1999 and 2000.
Industry underwriting results have been highly volatile since the inception of the current SRA, which targeted gross revenues of 14.5 percent. However, since the SRA took effect, the industry’s actual gross revenue has averaged just nine percent–a mediocre result compared to the Property and Casualty insurance industry as a whole. When you factor in the industry’s total expenses deficit over the same five-year period, net returns are just two percent.
These low returns are insufficient to build needed surplus and retain, let alone attract capital in the industry, which may explain why the industry saw acquisitions and exits since 2015.