# Presentation: 512618

## Adjusted Gross Revenue (AGR) Pilot Insurance Policy

**Notes:**
Developed as a joint effort with others:
1) Private insurance companies;
2) NCIS;
3) Data gathered by New England Vegetable and Berry Growers Association, Florida Fruit and Vegetable Growers Association, and Michigan Farm Bureau;
4) Rates and coverage developed in conjunction with Michigan State Univ... researchers and State Extension Farm Management Specialists from Florida, Massachusetts, Michigan, and New Hampshire.

## Objective

- Provide insurance safety net for producers of agricultural commodities without individual insurance programs

**Notes:**
Meets USDA’s and RMA’s goals to provide crop safety net for all agricultural commodities by year 2000.

Expands producer’s risk management tools

## Methodology

- Non-traditional approach
- Whole farm unit
- Schedule F tax information summarizes year’s financial activity
- Based on 5 year income and expense average

**Notes:**
Traditional programs - revenue coverage versus production based (individual crop programs insure yield quantity and quality).
- Think of crops as money and cash as the insured commodity.
- Think of farm as a business which is sum of all its parts.
Entire farm tax entity is a single insurance unit.

Schedule F farm income tax information used for 5 years.
- IRS rules, regulations and findings benefit this program.
- Reinforces program credibility and alleviates compliance concerns.

Producer can apply for AGR with little additional paperwork.

5 year average income is based on cash accounting system which approximates accrual accounting.
Losses are measured by accrual accounting to calculate earned income for the insurance year.  Adjustments to income and expenses are made for inventories, accounts receivable and accounts payable.

## Adjusted Gross Revenue 

- Insures all revenue from agricultural commodities:
- Produced on farm
- Purchased for resale

**Notes:**
Provides coverage for producers of agricultural commodities not covered by policies issued under the Crop Insurance Act.

Covers all revenue from agricultural commodities:
	Produced on the farm; and
	Purchased for resale.

## Pilot Areas

- New England - Maine (4), Massachusetts (14), and New Hampshire (7)
- Michigan (5)
- Florida (6)

**Notes:**
New England Area - Maine 4 counties, Massachusetts 14 counties, and New Hampshire 7 counties.  8,743 farms in pilot area.  Current MPCI policies for 1998 is 327 (or 3.7% of market).

Michigan Area - 5 counties.  6,502 farms in pilot area.  Current MPCI policies for 1998 is 1,722 (or 26% of market).

Florida Area - 6 counties.  5,188 farms in pilot area.  Current MPCI policies for 1998 is 105 (or 2% of market).

See list of pilot and related contiguous counties.

## County

- Counties contiguous to pilot county, are considered part of pilot county
- Majority of agricultural production must be derived from pilot county

**Notes:**
AGR policy reference, Section 1, Definitions.

Standard county definition, plus counties that are contiguous to the pilot counties are considered to be a part of the pilot county.
Majority of agricultural commodity production must be from the pilot county rather than from counties contiguous to the pilot county. 

## Liability and Revenue Covered

- Approved AGR X Coverage Level (%) = Liability
- Liability X Payment Rate (%) = Revenue Covered
- Example
- $100,000 approved AGR X .80 = $80,000
- $80,000 X .75 = $60,000 revenue covered

**Notes:**
Highest coverage available = 80% coverage level with 75% payment rate.

Illustrates maximum loss possible if income were zero.

In this example, actual revenue for the insurance year must fall below
$80,000 ($100,000 X .80) liability before any indemnity can be paid.
The producer is paid 75% of the amount of revenue lost after the loss threshold is exceeded or for a total loss $80,000 X .75 = $60,000.

## Amounts of Coverage

- Limited Coverage
- 80/75 (80% coverage level and 75% payment rate)
- 75/75
- 65/75

**Notes:**
Considered Limited Coverage for administrative fee and SRA administrative reimbursement purposes.

Three coverage levels and one payment rate available for 1999 insurance year.
Effective percent of coverage:
	80/75 - 60%
	75/75 - 56.25%
	65/75 - 48.75%
Coverage levels contained in Special Provisions.

## What’s Covered ?

- Loss of insured revenue
- Resulting from a combination of loss of production and price for insured agricultural commodities

**Notes:**
AGR policy reference, Section 1, Definitions.

Any loss must be from causes beyond the control of the producer.

## Agricultural Commodity

- Any Agricultural production
- Excluding timber, forest, and forest products (except maple tree sap and Christmas trees)

**Notes:**
AGR policy reference, Section 1, Definitions.

Exceptions to timber, forest and forest products not being considered an agricultural commodity  - Maple Tree Sap and Christmas trees.

## Animals

- Considered an agricultural commodity
- Excluding animals for sport, show, or pets

**Notes:**
AGR policy reference, Section 1, Definitions.

## Insured Revenue

- Insured revenue = Sale of commodities produced, purchased for resale, plus other allowable income
- Do not include increased value due to post-production processes

**Notes:**
Post-production processes include canning, freezing, packing or packaging plus related labor and materials.

## 1999 AGR Timeline

- Jan 1

- sales closing

- Jan 31

- Dec 31

- Mar 1

- July 1

- Tax Date

- Last Date Claim

- “99 Insurance Year

**Notes:**
Timeline for 1999 insurance year.

Insurance Year begins January 1 and ends December 31 each year.

Producers filing taxes on other than a calendar year basis are not eligible for AGR.

Sales closing dates for subsequent years will be September 30 for Florida and November 20 for all other states (similar dates for other insurance programs).

Claims cannot be paid until after tax returns have been filed after March 1 of the year 2000 but not later than July 1, 2000 (even if the producer has not filed taxes for 1999 by July 1 of 2000).

## AGR Contract consists of:

- Application
- Policy
- Special Provisions
- Annual Farm Report:
- AGR History
- Intended Commodity Report
- Beginning Inventory
- Agricultural Commodity Profile

**Notes:**
Refer participants to copy of AGR application.  Discuss the following:
1) Name of applicant must match name on tax forms.
2) Multiple state and counties entries possible.
3) Applicants SSN or EIN required (include spouse’s SSN if filing jointly).
4) Include SSN or EIN for persons with substantial beneficial interest in this entity.
5) Coverage level and payment rate entries required.
6) Must answer conditions of acceptance questions.

Agricultural Commodity Profile required  first year along with copies of 5 years of Schedule F tax forms for the two highest coverage levels.
Profile serves as a data collection vehicle for further evaluation and analysis.

## Qualifying Person

- Income from production of ag. commodities
- Majority of operation within pilot counties with some from contiguous counties
- If individual, U.S. citizen or resident
- Corporation, partnership or trust, permanently established in U.S. and files Schedule F or substitute

**Notes:**
Policy Ref:   Section 1, Definitions.

Agricultural commodities must be produced primarily within pilot counties, but may also derive some income from agricultural commodities produced in adjoining counties.

Income derived from agricultural commodities produced in other counties will cause entire operation to not be eligible for AGR coverage.

Corporations - may file Schedule F for AGR purposes, marked “For insurance purposes.” 

## Qualifying Person (cont.)

- Filed calendar year tax return for each year of AGR history
- Same tax entity for insurance year
- Supporting records available for income and expenses and value of post-production operations
- No substantial beneficial interest in any other entity

**Notes:**
Must file taxes on a calendar year basis (98% of filers use this method).  Fiscal year filers cannot participate in AGR.

Must operate as one tax entity.  Coverage is provided for loss of revenue for the person named on the application.  The insured share will not extend to any other person with a share in the agricultural operation (see Section 8 of AGR policy).

Must provide supporting records for Schedule F, if requested.

Cannot have interest as individual and corporation.  Revenue too easily moved from one entity to another.

## Qualifying Person (cont.)

- For each year, will not have no more than:
- 50% of income from agricultural commodities purchased for resale
- 50% of income from combination of any crop for which MPCI coverage is available (except pilot programs) plus animals and animal products, unless crop is insured under MPCI
- 35% of income from animals or animal products

**Notes:**
Will not insure primarily retail operations.
50% limit applies for:
	A crop; or
	Combination of crops; or
	Combination of crops and animals and animal products.
Must insure crops listed under AGR policy (which are MPCI regulatory crops) where insurance is available (do not have to purchase MPCI insurance for crops under a pilot MPCI policy) if the crop,  a combination of crops and animals and animal products exceeds the 50% income limit.
Crops are alfalfa, apples, barley, clover, corn, cotton, cranberries, dry beans, grain sorghum, grapefruit, grapes, lemons, limes, mixed hay, nursery, oats, onions, oranges, peaches, peanuts, popcorn, potatoes, processing beans, soybeans, sweet corn, tobacco, tangelos, tangerines, tomatoes, and wheat.

Example:  Corn and wheat exceed the 50% limit.  Corn is produced in both the pilot county and a contiguous county and wheat in only the contiguous county.  MPCI policies are required for corn in both counties, if available, and MPCI wheat in only the contiguous county, if available.  This determination must be made annually.
Animal products include eggs, furs, milk, butter, wool, etc.

## Examples of Nonqualifying Person

- If farm as individual and corporation - not eligible for AGR for either entity
- If farm as individual and own corporation which processes or sells agricultural commodities - not eligible for AGR for either entity
- If farm as individual and partnership filing separate tax returns - not eligible for AGR for either entity

**Notes:**
Producer may not have interest in any other tax entity to be eligible for AGR.

## More Examples (cont.)

- If 30% income from corn and 25% from wheat - insurance issued under Act required on both crops, if available, to be eligible for AGR
- If 30% income from animals, 25% from corn - insurance issued under Act required on corn, if available
- If 20% income from feeder calves and 10% from sheep - eligible for AGR

**Notes:**
First Example - Exceeds 50% limit for crops on list.

Second Example - Exceeds 50% limit for combination of crops,  animals and animal products.

Third Example - Within 35% limit for animals and animal products.

## AGR Income and Expense History

- Written record of income and expenses for 5 consecutive tax years  (for ‘99 use ‘93 through ‘97)
- Use one lag year (‘98)
- Verify records using farm tax forms, etc.

**Notes:**
Copies of Schedule F’s required for each year of 5 year period.

Supporting records required to substantiate Schedule F if adjustments were made to the allowable income and expense information contained on the  historical Schedule F’s when completing the revenue report.

See AGR Handbook.

## Allowable Income(Reported to IRS)

- Sale of animals and commodities bought for resale less costs
- Sale of animals and commodities raised
- Taxable amount of cooperative distributions from production of agricultural products
- CCC loans reported under election
- Taxable amount of CCC loans forfeited

**Notes:**
AGR policy reference, Section 1, Definitions.

## Allowable Income (cont.)

- Other income related to production of agricultural commodities including:
- Bypass payments
- Diversion payments from Federal, State or other marketing order
- Income from bartering
- But not value added by post-production operations

**Notes:**
Other income must be directly related to the production of agricultural commodities.

Records are required to identify the value added by post-production operations (such as packing, packaging, canning, freezing, processing and reconditioning).

See AGR Handbook.

## Allowable Expenses (Reported to IRS)

- Cost of animals and other commodities bought for resale
- Car and truck expenses
- Chemicals
- Conservation expenses
- Custom hire (machine work)
- Depreciation for animals
- Feed purchased

**Notes:**
AGR policy reference, Section 1, Definitions.

## Allowable Expenses (cont.)

- Fertilizers and lime
- Freight and trucking
- Gasoline, fuel, and oil
- Insurance (other than health)
- Labor hired
- Repairs and maintenance
- Seeds and plants purchased

## Allowable Expenses (cont.)

- Storage and warehousing
- Utilities
- Supplies purchased, excluding those used in post-production value added operations
- Veterinary, breeding and medicine

## Allowable Expenses (cont.)

- Other farm expenses required for production of commodity
- But not rent or lease, interest, taxes, depreciation (other than for animals), employee benefit programs, and pension and profit sharing plans

**Notes:**
See AGR Handbook for more information on items not considered to be allowable expenses.

## Schedule F

- Summarizes income and expenses for each insurance year, used for AGR history and claims settlement
- Other tax forms may provide additional supporting information (4835, 4797, Schedules D and E, etc.)

**Notes:**
Show blank copy of Schedule F and discuss:
1) Farm Income - following items must be deducted from Schedule F Gross Income and the total gross income recomputed for AGR purposes:
	Agricultural program payments
	Crop insurance proceeds and certain disaster payments
	Custom hire
2) Other tax forms related to farm income (see AGR Handbook):
	4835 - Farm Rental Income - Share
	Schedule D (Form 1040) or 4797 - Gains from sale of livestock for breeding, or 	dairy purposes
	Schedule E - Farm Income
3) Farm Expenses - following items must be deducted from Schedule F Total Expenses and the total recomputed for AGR purposes:
	Depreciation other than from Livestock
	Interest
	Pension and profit sharing plans
	Rent or lease
	Other expenses not directly related to production of agricultural commodities 

## Approved AGR

- Simple 5 year average of AGR history on farm report
- Indexed for growth
- Reduced if reduction in expected income for insurance year

## Annual Farm Report

- File with application 1st year or by sales closing date in subsequent years
- No changes after required submission date without consent
- Revenue Report - 5 year income and expense history
- Intended Commodity Report
- Report of Changes

**Notes:**
Show copy of Annual Farm Report and discuss:
1) Revenue Report, 5 year history of:
	Allowable income
	Allowable expenses
	Preliminary AGR - completed by agent.
	Approved AGR - completed by insurance provider.  May be reduced if data 	incorrect or not verifiable (indemnity and premium adjusted accordingly).
2) Intended Commodity Report for current year:
	Commodity name and code
	Total number of commodities
	Years produced
	Intended amount
	Expected value
	Expected Income
3) Report of Changes - in Narrative portion or Annual Farm Report.
See AGR Handbook.

## Report of Changes

- Commodities produced/location
- Size of operation/practices
- Share
- Market conditions
- Crop damage occurring prior to beginning of insurance
- Changes that may reduce income from previous levels

**Notes:**
Found in Narrative part of the Annual Farm Report.
Report any changes annually.

See AGR Handbook.

## Calculating Approved AGR

- Total allowable income -:- 5 (yrs) = average AGR
- Average AGR may be indexed for expanding operation
- Approved AGR is lower of:
- Average or indexed AGR; or
- Total expected income

**Notes:**
Follow along on copy of Annual Farm Report, Revenue Report section.

Only producers who have maintained the same tax entity for the last 7 years will qualify for AGR (1993 - 1997 base years, 1998 lag year, and 1999 insurance year).
New producers will not qualify until they have 7 years of tax records.

See AGR Handbook.

## Average AGR (Income) Example

- 1993
- 1994
- 1995
- 1996
- 1997
- Total
- Average AGR
- Index, if applicable

- $90,500
- $99,550
- $92,000
- 119,600
- _130,360_
- $532,010
- $106,402

**Notes:**
Example of computing the 1999 insurance year average AGR.
Have students compute another example for practice.

For the next year, the producer will report the lag year’s income and expense data and drop the last year from the 5 year data base (which will then contain years ‘94 - ‘98 with ‘99 as the lag year).  Continuity of records must be maintained for the entire 5 year period.
See AGR Handbook for further instructions and exceptions.

## Calculating Approved Expenses

- Simple 5 year average
- Indexed using same factor used to index approved AGR

**Notes:**
Example:  If the approved AGR income is indexed because of a history of growth, then the approved average AGR expenses will be adjusted by the same factor.

See AGR Handbook.

## Average Expenses Example

- 1993
- 1994
- 1995
- 1996
- 1997
- Total
- Average Expenses
- Index, if applicable

- $63,500
- $74,660
- $83,500
- $83,900
- _$100,370_
- $405,930
- $81,186

**Notes:**
Example of computing average expenses.
Have students complete another example for practice.

Expense history will be updated annually the same as income history.

See AGR Handbook.

## Indexing AGR for Growth

- If 2 most recent year’s (‘96 & ‘97) allowable income are greater than average AGR, calculate index:
- Each year’s allowable income -:- preceding year’s allowable income = factor (.xxx)
- Cap factor at 1.200
- Total all factors and divide by 4 = factor (.xxx)
- Multiply factor (.xxx4) = factor (x.xxx)
- Factor X average AGR = indexed average AGR
- Adjust average expenses by same factor

**Notes:**
Each year’s factor is capped at 1.200 (or 120%).

When computing to the 4th power, multiply the number by itself  three times.  

Because the average effective coverage will lag behind the producer’s actual average revenue when the amount of revenue is increasing each year, the indexed AGR computation will bring the average revenue up to a level that reflects the historical revenue increase.
The average expenses are also adjusted upward by the same factor used to increase the revenue.

See AGR Handbook.

## Computing Indexed AGR

- ‘93  $90,500
- ‘94  $99,550
- ‘95  $92,000
- ‘96  $119,600
- ‘97  _$130,360_
- Tot. $532,010
- Avg. $106,402

- $99,550 / $90,500 =
- 1.100 (repeat for each line)
- .924
- 1.300 (cap at 1.200)
- _1.090_
- 4.314 / 4 = 1.079
- 1.079 4 = 1.355
- 1.355 X $106,402 =
- $144,175 Indexed Avg. AGR

**Notes:**
Example of how indexed AGR is computed.
Have students compute another example for practice.

The average expenses will also be indexed $81,186 X 1.355 = $110,007 indexed average expenses.

## Qualifying for 2 Highest Coverage Levels

- 80/75 coverage, produce 8 or more commodities, each with minimum expected income
- 75/75 coverage, produce 3 or more commodities, each with minimum expected income

**Notes:**
Qualification are based on the number of commodities produced and their dollar values.
The agricultural commodities are shown on the Agricultural Commodity Listing (issued as part of ADM) along with their respective code numbers.  A copy should be provided to the agent. 

If 3 commodities insured, each must be at least 16.7% of expected income.
If 8 commodities insured, each must be at least 6.25% of expected income.
If more than 3 or 8 commodities insured, must compute minimum required percentage.

See AGR Handbook.  

## Higher Coverage Formula

- Commodity value must be equal to or greater than:
- 1 -:- number of commodities produced = factor (.xxx)
- Factor X 0.5 = factor (.xxxx)
- Factor X total expected income = minimum qualifying dollar amount for each of at least 3 or 8 commodities

**Notes:**
Formula for determining if a producer’s farming operation qualifies for the two highest coverage levels. 

## Higher Coverage Example

- If $163,360 expected income produced from 4 commodities:
- 1 -:- by 4 = .250
- .250 X 0.5 = .1250
- $163,360 X .1250 = $20,420 minimum qualifying amount for each of at least 3 commodities

**Notes:**
Example of formula for determining qualifications for the two highest coverage levels.
Have students compute another example for practice:
1 -:- 9 commodities = .111
.111 X 0.5 = .0555
$163,360 expected income X .0555 = $9,066 minimum qualifying amount for each of at least 8 commodities to qualify for the 80/75 coverage.

## Agricultural Commodity Profile

- Submit 1st year for 75/75 or 80/75 -  sales closing date
- Report by commodity:
- Location of commodity and quantity produced
- Acres planted and practices (irrigated)
- Marketing methods
- Send Profile to RMA, Kansas City, Mo.

**Notes:**
Refer students to copy of Agricultural Commodity Profile and discuss.

List of commodities and their code numbers are issued as a part of the Actuarial Data Master (ADM) and a copy should be provided to the agent.

Include photo copies of 5 years of Schedule F’s and send with the Agricultural Commodity Profile to RMA in Kansas City, Mo.  See AGR Handbook.

## Inventory and Accounts Receivable Report

- Beginning Inventory - File annually by Jan. 31
- For animals, use Animal Inventory and Accounting Worksheet to determine beginning inventory
- No revisions after filed, without consent
- Ending Inventory and beginning and ending accounts receivable - At loss time

**Notes:**
Refer students to copy of Inventory and Accounts Receivable Report and discuss:
	Commodity name
	Year
	Locations of beginning inventory
	Dollar value of beginning inventory
Remaining information completed at time of loss.
For animals, use the Animal Inventory/Accounting Worksheet to identify beginning inventory on hand as of January 1.  Beginning inventory must be filed by January 31 for each year.  Ending inventory will be determined at time of loss.
If commodity delivered and price is known but money not yet received, then item considered accounts receivable.
If commodity delivered but price is not known, then considered inventory item and price must be established.
Beginning inventory must be documented at the beginning of the year or it will  be included as income to count for the insurance year.
See AGR Handbook.

## Abandoned(Definitions, Sec 1)

- Cannot abandon commodity to us
- Exceptions to abandonment:
- Low market prices;
- Insured cause prevents proper care, harvest or marketing; or
- Insured damage makes care or harvest unfeasible;
- Then not required to harvest commodity

**Notes:**
Cover other definitions in Section 1, as needed.

Definition of Abandon modified for AGR.

Insured not required to harvest when market price is less than price they would receive if commodity sold.

AGR pays only a portion (75% payment rate) of each loss and includes income from the entire farm business.

## Life of Policy (Sec 2)

- Continuous policy
- Canceled automatically by cancellation date for 2002 insurance year
- Must be qualifying person
- Acceptable application
- Require SSN or EIN, coverage level, payment rate and other material information
- May cancel if 3 years without earned premium

**Notes:**
Missing material information may be grounds for cancellation of this policy. 
Missing information includes SSN’s, acceptable supporting documentation for Schedule F’s, or missing Schedule F’s. 

## Cancellation and Termination Dates (Sec 2)

- Florida - September 30
- All other states - November 20

**Notes:**
Example:  November 20, 1999 is the cancellation date effective for the 2000 insurance year in states other than Florida.
November 20, 1999 is the termination date for indebtedness effective for the 2000 insurance year in states other than Florida.

## Contract Changes (Sec 3)

- June 30
- Notified in writing not later than 30 days prior to cancellation date

**Notes:**
Example:  June 30, 1999 is the contract change date for the 2000 insurance year.

## Administrative Fee (Sec 6)

- Limited Coverage = $50
- Pilot county and contiguous county = one county and one $50 fee
- Billing date for premium/fees on Special Provisions

**Notes:**
Administrative fee - $50 per AGR policy.
One policy may cover two counties and only one $50 fee will be charged.
For 1999 insurance year:
	Florida - 8/1/99
	All other states - 9/1/99

## Premium Credit for MPCI Coverage (Sec 6)

- AGR crops with MPCI coverage, subtract total liability of MPCI policies not to exceed 50% of AGR liability
- $108,131 AGR liability X .5 = $54,065.50 max reduction allowed
- If $55,000 MPCI Corn liability, use smaller of the two numbers
- $108,131 - $54,065.50 = $54,065.50 AGR liability for premium determination purposes

**Notes:**
Premuim is determined by AGR liability X payment rate X premium rate X premium adjustment percentage, if any.  Share is always assumed to be 100%. 

Premium is determined by using an electronic premiun calculator program.
There are no FCI-35 Actuarial Tables published for premium computation purposes.

## Causes of Loss (Sec 9)

- Loss of revenue due to unavoidable peril occurring during current or previous insurance period that causes loss of revenue for current year

**Notes:**
Allows for continuous coverage for perennial crops to start at the beginning of the insurance period of the 1st year and continue through the 2nd year.

Example: Damage occurring in January of the 1st year may reduce production in the 2nd year.  Damage that becomes apparent in the 2nd year would be covered under this provision. 

## Does Not Cover

- Theft or mysterious disappearance
- Vandalism
- Inability to market due to quarantine, boycott, or refusal to accept commodity
- Lack of labor
- Failure of buyer to pay producer

**Notes:**
The following are in addition to the standard “causes of loss not covered” that are found in most policies.

Also not covered:
a) Negligence, mismanagement, or wrongdoing by insured, any member of family, or household, tenants, employees, or contractors.
b) Failure to follow recognized good management practices for each commodity.
c) Water contained by any governmental, public, or private dam or reservoir project.
d) Failure or breakdown of irrigation equipment or facilities.
e) Failure to carry out a good irrigation practice, if applicable.

## Does Not Cover (cont.)

- Failure to follow processor’s contract requirements
- Abandonment
- Failure to obtain price reflective of local market value
- Damage occurring prior to January 1 for year of application

**Notes:**
For the year of application, any damage occurring to agricultural commodities prior to January 1 of the insurance year will not be covered.
The Intended Commodity Report contained in the Annual Farm Report should reflect the reduced expected revenue resulting from the damage that occurred prior to insurance attaching.

## Insured’s Duties (Sec 10)

- Notify within 72 hours of initial discovery that income could fall below AGR liability
- Notice deadline is 15 days after taxes filed
- Documentation:
- Copy of tax forms and amendments
- Inventories (ending)
- Accounts receivable (beginning and ending)

**Notes:**
AGR liability = Approved AGR X Coverage level percentage.

Beginning inventories should have been collected  January 31 for the insurance year.

Use the date the Schedule F is signed and dated by the producer for determining the 15 day notice of loss deadline. 

Requests to IRS for extension of tax filing date are not considered to be filing farm tax forms.

## Insured’s Duties (cont.)

- Submit claim no later than 60 days after filing taxes
- If taxes not filed by July 1 following insurance year, no indemnity paid

**Notes:**
Date of signature on Schedule F tax form used to determine 60 day limit.

## Our Duties 

- Pay claims within 30 days
- Not settle claim until taxes filed

**Notes:**
If taxes are not filed by July 1 immediately following the insurance year, no indemnity will be paid.

## Claim for Indemnity (Sec 11)

- If actual expenses fall below 70% of approved or indexed expenses, reduce approved AGR by 0.1% for each 0.1% below 70.0%
- Multiply adjusted approved AGR by coverage level % = AGR liability
- Subtract revenue to count
- Multiply by payment rate = Indemnity

**Notes:**
Approved AGR will be adjusted downward if the actual expenses for the insurance year are less than 70% of the approved or indexed expenses.

## Example for Reducing Approved AGR for Lower Actual Expenses

- If $110,007 Approved expenses and $74,805 actual expenses, compute:
- $74,805 divided by $110,007 = .68
- .70 - .68 = .02 or 2 percent
- 2 X 0.1% = 2% or .02
- 1.00 - .02 = .98
- $144,175 approved AGR X .98 = $141,292 adjusted approved AGR

**Notes:**
Allow students to compute another example for practice.

## Claim for Indemnity (cont.)

- Income and expenses to count taken from tax forms
- For cash accounting method, make adjustments to income and expenses for:
- Ending - beginning inventory/accounts receivable = amount added to or subtracted from income to count
- Ending - beginning accounts payable = amount added to or subtracted from expenses to count

**Notes:**
Do not include cost of items purchased for resale.

See AGR Handbook for requirements on inventory, accounts receivable and accounts payable. 

## Indemnity Computation

- Actual expenses $93,546 -:- Approved expenses $110,007 = .850 expense factor
- .850 greater than .700 expense factor trigger point, so no reduction of approved AGR for low expenses
- Approved AGR $144,175 X .75 Coverage = $108,131 AGR liability
- Gross revenue to count $88,500

**Notes:**
Example of indemnity computation. 
Expense factor adjustment made only if actual expenses are less than 70% of approved expenses.  (Note: Approved average expenses were adjusted upward by the same index factor for growth that was used to adjust the approved AGR.) 

## Indemnity Computation (cont.)

- Adjust revenue to count for inventory and accounts receivable
- $3,000 Ending inventory - $33,480 Beginning inventory = - $30,480
- $88,500 gross revenue - $30,480 = $58,020 revenue to count
- $108,131 AGR liability - $58,020 = $50,111 revenue loss
- $50,111 X .75 payment rate = $37,583 indemnity

**Notes:**
Use Inventory and Accounts Receivable Report to compute inventory adjustments.

For animals, use the Animal, Inventory/Accounting Worksheet to determine inventory adjustments at time of loss.

See AGR Handbook. 

## Add to Income to Count

- Income lost due to uninsured causes
- Insurance payments for losses paid on commodities produced
- NAP or other disaster payments (total payments plus AGR indemnity may not exceed actual amount of loss)
- Net gain from commodity hedges

**Notes:**
Other insurance losses include MPCI, hail, or mortality policies, etc.

NAP payments or other crop disaster payments included as income in the year they are received.

## Claim Cannot be Settled Until:

- Taxes filed for insurance year
- Other insurance claims covering insured commodities finalized

**Notes:**
July 1 is the deadline for filing taxes and still remain eligible for an indemnity.

If other insurance claims for the insurance year are still pending for commodities insured under the AGR policy, the AGR claim must be held until the other insurance claims have been paid.  The July 1 deadline applies only to the producer’s failure to file tax forms by that date.  AGR claims may be held past July 1, if  other insurance payments are still pending.  

## After Claim Settled

- Notify us and provide copies of  IRS audit results and amended tax forms
- Claim may need to be revised

**Notes:**
Producers may amend tax returns after an AGR claim has been filed.  In such cases, the producer is required to notify the insurance provider of the amended tax forms.  The AGR claim may have to be revised based on the amended tax forms.  The same is true for IRS audits. 

## Other Insurance (Sec 15)

- May obtain other insurance issued under Act or not issued under Act
- Other policies primary
- Other insurance payments for insured commodities considered income to count

## Other Features

- Transfer of coverage and right to indemnity not allowed (sec 21)
- Assignment of indemnity applies (sec 22)
- Subrogation applies (sec 23)