The Standard Reinsurance Agreement (SRA) is a cooperative financial agreement between FCIC and each of the approved insurance provider companies, referred to as AIPs, to deliver eligible crop insurance contracts to farmers and ranchers. It establishes and governs the business and financial relationship between FCIC and the AIPs, including the terms and conditions by which the FCIC will provide administrative and operating expense reimbursement and reinsurance on the eligible contracts sold by the AIPs.
The terms and conditions of the SRA may be renegotiated once every five years that started with the 2011 reinsurance year. The 2014 farm bill mandated that any future renegotiated SRA must be budget-neutral, with the congressional intention that the funds available for reinsurance and administrative and operating expense reimbursement to deliver the program not be reduced or cut unless authorized under the Federal Crop Insurance Act.
Though the SRA plays a notable role in relation to overall program costs, it does not affect the policy premiums paid by farmers, which are based on the Risk Management Agency’s (RMA’s) best estimates of risk as set by statute.
Financial returns to the crop insurance industry under the current SRA have fallen significantly short of both the expectations upon which the 2011 SRA was premised and objectively reasonable rates of return on capital. The unanticipated reductions in financial returns for crop insurers is documented in a 2017 study by economists from the University of Illinois and Cornell University. As noted in the study, crop insurance providers had an average net return on retained premium of 14.1 percent between 1998 and 2010. In sharp contrast, the report determined that from 2011 to 2015 returns averaged only 1.5 percent — a decline of 12.6 percent.
* Updated April 2020