BULLETIN NO.:  MGR-97-027

TO:       All Reinsured Companies
          All Risk Management Field Offices
          FSA Headquarters, Program Delivery and Field Operations

FROM:     Kenneth D. Ackerman
          Administrator          

SUBJECT:  Draft 1998 Standard Reinsurance Agreement

Attached for your review and comment is a final draft of the 1998 Standard 
Reinsurance Agreement (draft SRA), as well as Appendices 1 and 2, Exhibit 20A, 
and Manual 14.  A draft Manual 13 is being provided separately from the 
Kansas City Office.

The original draft was revised in response to comments received directly from 
crop insurers and other interested parties as well as comments presented 
during the meetings from workgroups comprising Risk Management Agency (RMA) 
and crop insurance industry personnel.  For ease of analysis, the SRA issues 
were divided into four areas, which are:

     1.   Risk sharing;
     2    Administrative and Operating (A&O) subsidy, fees, and other payments;
     3    Operations; and
     4    Performance under the SRA and Manual 14.

A brief synopsis of changes affecting the four major areas follows.  Please 
read the draft SRA carefully as the synopsis is not intended to be complete.

RISK SHARING

The draft SRA provides three Commercial Funds in each State--one for buy-up 
policies, one for Catastrophic coverage policies (CAT), and one for revenue 
coverage policies.  It also provides three Developmental Funds in each State 
on the same basis.  One Assigned Risk Fund in each State will be used to 
accommodate all policies placed in such fund.

Designation of policies to the Assigned Risk Fund will be as before.  However, 
designation of policies to the Developmental Fund will be on a crop contract 
basis and must be completed by the contract change date for each crop. 
Retention limits for the Commercial and Developmental Funds may be varied by 
State and fund.  Exhibit 14 will be reduced to one page.

The proposed risk sharing parameters for each fund are shown in Section II. C.

The inception point for the Reinsurance Account has been raised to 17.5 percent 
and 40 percent of the gain in excess of that limit will be paid to companies 
to cover income tax liabilities.

A&O SUBSIDY, FEES AND OTHER PAYMENTS

The flat percentage rate of 24.5 percent applied to net book premium will be 
the basis by which A&O subsidy payments will be made on most buy-up policies.  
FCIC will provide a 3 percent excess loss adjustment expense payment when 
loss ratios exceed certain limits.  CAT policies will continue to receive the 
same loss adjustment payments as they did under the expiring SRA.   A&O 
subsidy for revenue coverage and group risk plan policies will be limited as 
shown in Section III.A.  Loss adjustment expenses are more fully discussed in 
Section IV.

Traditionally, the payment of administrative and operating expenses has been 
in two installments.  During legal review, the payment of the A&O subsidy in 
one installment has been questioned since some expenses may not yet be 
incurred at time of payment.  RMA will work to resolve this matter and advise 
accordingly.

OPERATIONS

FCIC has addressed many of the issues identified by those who had comments, 
including the following:

--        Added a new section addressing program changes;

--        Revised companies' obligations under USDA's nondiscrimination policy;

--        Requires companies to write all plans of insurance, except those 
          approved under section 508(h) of the FCIC Act, in any State in 
          which they operate and to insure all applicants for all
          crops in such State;

--        Adds a  definition of "field person," which provides reasonable 
          flexibility to the companies for managing sales and loss adjustment;

--        Changed the definition of "managing general agent" to follow State 
          insurance rules wherever possible.  In the absence of State rules, 
          or regulations governing an MGA, the National Association of 
          Insurance Commissioners' Model Act will apply; and 

--        Includes a definition of "records" as original signed documents, 
          which may be either on paper or by electronic means.

PERFORMANCE UNDER THE SRA AND MANUAL 14

Companies are required to perform certain duties under the SRA and comply with 
the rules and regulations of FCIC.  Failure to perform duties or comply with 
regulations may trigger termination or suspension of the SRA and/or the 
payment of specified amounts.  These are specified in Section V., subsections 
J., K., and L.

Also, during final review, Section V.J.5.d. was determined to be an important 
provision for the overall integrity of the crop insurance program.  While this 
was a controversial issue, during work group discussions, the provision was 
reworked to include the term "material" and applies only to eligible crop 
insurance contracts that are reviewed and such failure is determined to have
occurred.

Manual 14 was revised significantly.  New agents must successfully complete 
at least 12 hours of structured training and a basic competence test 
administered by the Company.  After the first year, agents must complete at 
least 3 hours of structured training and be retested every 3 years.  
Loss adjusters must successfully complete annual training of 10 days of 
structured training and a basic competence test.  After the first year of 
loss adjustment experience, loss adjusters must annually complete at least 3 
days.  Loss adjusters must also successfully complete a basic competence 
retest every 3 years.  The company must annually provide to RMA a report of
training results.

In regards to quality control, companies must submit their plan to conduct 
quality assurance reviews.  The company must also provide RMA an annual 
report of  the company's quality control review results.  General review 
requirements are provided for both FCIC and the companies.

Your written comments to this draft SRA are appreciated and will be 
considered if received before close of business on July 14, 1997.  They should 
be sent by facsimile or overnight mail to the following address:

          USDA/Risk Management Agency
          Reinsurance Services Division
          E. Heyward Baker, Director
          1400 Independence Ave, S.W.
          Rm. 6727-S, Stop Code 0804
          Washington, D.C.  20250
          Telephone:     (202) 690-4232
          Fax:    (202) 690-3604

If you have any questions, please contact the Reinsurance Services Division.
   
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