The Standard Reinsurance Agreement (SRA) is the formal contract between the Federal government (USDA/RMA) and private-sector insurance providers (AIPs). It spells out the details of the partnership that makes crop insurance unique.
The latest agreement took effect in 2011, and it defines the contractual arrangement between the USDA and Approved Insurance Providers (AIPs). The SRA spells out expense payments and risk-sharing by the government, including the terms under which the government provides reinsurance (i.e., insurance for insurance companies) on eligible crop insurance contracts sold or reinsured by insurance companies. Thus, the SRA plays a central role in determining program costs. The SRA, however, does not affect policy premiums paid by farmers, which are based on the Risk Management Agency’s (RMA’s) estimates of risk and on premium discounts set by statute.
The financial performance of the crop insurance industry under the current 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.
Financial returns for crop insurers have dropped markedly under the new SRA, as was found in a 2017 study by economists from the University of Illinois and Cornell University. Crop insurance providers had an average net return on retained premium of 14.1 percent between 1998 and 2010. In sharp contrast, the report noted that from 2011 to 2015 returns averaged only 1.5 percent — a decline of 12.6 percent.
* Updated August 2018