The Actual Production History Yield Exclusion:

Overview of Premium Rating

Background:

Section 11009 of the 2014 Farm Bill, or Section 508(g)(4)(C) of the Federal Crop Insurance Act

(the Act), directs the Risk Management Agency (RMA) to allow producers the option to exclude 

any recorded or appraised yield for any crop year in which the county yield is at least 50 percent 

below the simple average during the previous 10 consecutive crop years.

 A crop year determined eligible for exclusion in a county will also be eligible for exclusion 

in any contiguous county by any producer.

 Separate determinations will be made for irrigated and non-irrigated acreage.

Section 508(g)(4)(D) of the Act provides that premium shall be adjusted to reflect the risk 

associated with the exclusion of yield history. Furthermore, the election to exclude yield history 

does not circumvent Section 508(d)’s actuarial sufficiency requirement. 

Premium Rating Approach

The Actual Production History (APH) Yield Exclusion (YE) may allow producers to increase 

their APH beyond what would have been obtained under current yield measures (i.e. 60 percent

transitional yield (T-yield) substitution). An increase in APH results in a higher insurance 

guarantee, and greater indemnity payments, than would otherwise have occurred. This requires 

an increase in the premium rate charged to producers using YE in order to account for the 

increased risk of loss.

The following table provides an illustrative example of how YE can affect APH. It is based on a 

corn producer. The years eligible for exclusion include 2011 and 2012. The producer has yields 

reported for each year since 2005, allowing both 2011 and 2012 to be excluded. Approved yields 

are provided for the simple average APH, APH with 60 percent T-yield substitution, and APH 

with excluded yields.

Year

County

T-yield 

60% of

T-yield

Grower

APH

APH w/60% 

Substitution

APH w/ 

Excluded Yields

2005 96 58 110 110 110

2006 104 62 100 100 100

2007 104 62 88 88 88

2008 104 62 118 118 118

2009 106 64 111 111 111

2010 106 64 110 110 110

2011 119 71 55 71 Excluded

2012 119 71 20 71 Excluded

2013 119 71 57 71 71

2014 119 71 153 153 153

Approved 

Yield 92 100 108
The simple unadjusted average of yields is 92 bushels per acre. Using the currently-available 60

percent yield substitution, this amount increases to 100 bushels per acre. The YE will enable the 

producer to increase his or her APH beyond what can be currently obtained – up to 108 bushels 

per acre.

The effect of YE on the producer’s insurance guarantee across different coverage levels is shown 

in Table 1. In this example, YE increases the insurance guarantee by approximately 5 percent, or 

roughly equal to a one-step increase in coverage level. For instance, the insurance guarantee for 

65 percent coverage, without using YE, is 65 bushels per acre. This happens to be about the same 

as the insurance guarantee for 60 percent coverage, but with YE. This shows that 60 percent 

coverage with YE has an effective coverage level of 65 percent.

Table 2 illustrates the approach used to determine premium rates for YE. The approach is based 

on the principle that a similar yield guarantee has a similar risk of loss, and so should have a 

similar premium rate. For instance, the premium rate charged for 60 percent coverage with YE 

(about $38) is nearly the same as the premium rate charged for 65 percent coverage without YE 

– because they both have nearly the same insurance guarantee (rounding to 65 bushels per acre in 

each case). Although the two yields round to the same number (65 bushels), they are slightly 

different, which is why the corresponding premium rates are slightly different.

To the extent that YE increases a producer’s effective coverage level, additional premium is 

charged in the same manner that RMA currently charges for higher coverage levels. Given this, 

actuarial soundness is not negatively impacted by the implementation of YE. This premium 

rating approach is currently being used for the APH Trend Adjustment (TA) – a type of yield 

adjustment that impacts yield guarantees in a similar manner as YE. TA is a privately-submitted 

insurance product that underwent external review during the Federal Crop Insurance Corporation

Board approval process. 

One other case to be addressed is when a grower selects a high coverage level and selects YE. 

For example, if the grower in Table 1, selects 85 percent coverage and YE, he or she would have 

an insurance guarantee of 92 bushels per acre, which translates into an effective coverage level of 

about 92 percent. However, RMA does not publish premium rates above 85 percent. What will 

occur instead is that RMA will extrapolate, based on data from the lower coverage levels, how 

much premium should be charged for a coverage level of 92 percent. In Table 2 this results in a 

premium rate of nearly $105, well above the premium rate for 85 percent coverage without YE.

As with any extrapolation, the potential error grows as the input value (i.e. effective coverage 

level) becomes more extreme and departs from actual historical experience. One consequence of 

this is that premium rates can grow very quickly, especially for effective coverage levels that

exceed 100 percent. As new data on effective coverage levels in excess of 85 percent become 

available each year, this extrapolation will be refined.
YE and Yield-Based Premium Adjustments

One component of premium rates is commonly referred to as a ‘yield adjustment’. The yield 

adjustment is based on a producer simple average yield, or ‘rate yield’, as compared to the 

average yield for the county (reference yield). To the extent that a producer’s rate yield is above 

the reference yield for the county, the premium rate decreases, and vice-versa. This reflects the 

fact that more productive producers tend to have a lower risk of loss.

The rate yield will continue to be based on all actual yields, regardless of whether some of those 

yields may have been excluded from a producer’s APH. This maintains a more accurate measure 

of a producer’s risk relative to other producers in the county. If yields from only the good years 

were used, the yield adjustment would not be as accurate. The yield performance of producers in 

bad years is at least as informative about their risk as their performance in good years and should 

not be excluded from this process. Therefore, YE leaves the yield adjustment unaffected.

Table 1: APH Guarantee Table 2: Premium Per Acre

Without YE

(APH=100)

With YE

(APH=108) Without YE With YE

Cov. 

Level

50% 50 54

Cov. 

Level

50% $19.13 $23.19 

55% 55 59 55% $24.26 $29.39 

60% 60 65 60% $30.58 $38.06 

65% 65 70 65% $38.18 $48.69 

70% 70 76 70% $48.55 $61.50 

75% 75 81 75% $59.53 $73.87 

80% 80 86 80% $71.42 $87.49 

85% 85 92 85% $84.33 $104.68