Farming is an inherently risky enterprise. In conducting their operations, farmers are exposed to financial losses because of production risks— droughts, floods, hurricanes, and other natural disasters—as well as the risk of crop revenue loss resulting from declines in production, price, or both. The federal government has played an active role in helping to mitigate the effects of these risks on farm income by promoting the use of crop insurance. RMA partners with private insurance companies, which sell and service federal crop insurance policies. Under the Federal Crop Insurance Act, RMA pays these companies A&O subsidies to cover the reasonable expenses of selling and servicing crop insurance policies. Prior to the changes implemented in the 2011 SRA, RMA calculated A&O subsidies by using a fixed percentage of a policy’s premium. This fixed percentage, which is called the A&O subsidy rate, varies by the type of insurance policy. In 2015, these rates ranged from 12 percent to 21.9 percent. The most common type of insurance policy is revenue protection, which has had an A&O subsidy rate of 18.5 percent since 2011. The price of the crop being insured is one of the factors in the premium amount. As a result, A&O subsidies rise and fall over time with changes in crop prices. For example, from 2000 to 2009, insurance companies’ A&O subsidies nearly tripled as a result of increases in crop prices during that time frame. This increase in the A&O subsidies occurred without a proportional increase in the workload for selling and servicing policies as expressed by the number of policies, acres, and the amount of insurance coverage purchased. To address the increases in A&O subsidies, the 2008 farm bill directed RMA to consider alternative methods for determining A&O payment rates as part of the 2011 SRA, stating that changes should take into account current financial conditions of the program and ensure continued availability of the crop insurance program to producers on a nationwide basis. Besides crop price changes, changes in premium rates cause changes in premium amounts and, in turn, A&O subsidies. RMA sets premium rates, which are a percentage of the insured crop value. Premium rates can change because of changes in a farm’s crop yield history and RMA updates of county premium rates that reflect past loss experience. Insurance companies’ expenses include overhead (e.g., employee salaries and rent), fees paid to insurance adjusters to verify loss claims, and commissions paid to insurance agents. Insurance agencies’ expenses include salaries and benefits, training, rent and equipment, software to aid farmers’ decisions, and legal services. Insurance agents’ responsibilities can include (1) informing farmers about applicable crop insurance policy provisions and (2) accurately preparing and completing a farmer’s insurance application, certification of production history, acreage reports, and other sales-related documents. The federal government is the primary reinsurer for the private insurance companies that take on the risk of covering, or “underwriting,” losses to insured farmers. The SRA sets the terms of the risk sharing between the participating insurance companies and USDA. The insurance companies retain part of the premiums and associated risk, and USDA holds the remaining premiums and risk. In addition, the 2005 SRA introduced a quota share provision, under which each company cedes to USDA a percentage of its underwriting gains or losses. The 2005 SRA set the quota share at 5 percent. In accounting for the crop insurance program’s costs to the government, the major categories are the following: Premium subsidies. Premium subsidies are provided by the government on behalf of farmers. As of January 2017, CBO projected that premium subsidies from 2017 through 2026 would average about $6.2 billion per year. A&O subsidies. The government pays A&O subsidies to participating insurance companies to cover the companies’ expenses to sell and service crop insurance policies. As of January 2017, CBO projected that A&O subsidies from 2017 through 2026 would average about $1.4 billion per year. Companies’ underwriting gains/losses. The government pays underwriting gains to participating insurance companies in accordance with the SRA’s gain/loss sharing provisions. The term refers to companies’ retained premiums minus their share of the indemnities paid to farmers followed by adjustments based on the SRA’s gain/loss sharing and quota share provisions. As of January 2017, CBO projected that companies’ underwriting gains from 2017 through 2026 would average about $1.3 billion per year. Excess losses. Excess losses are total indemnities—payments to farmers for losses—minus total premiums (i.e., premiums paid by farmers plus premium subsidies provided by the government). As of January 2017, CBO projected that excess losses from 2017 through 2026 would average about -$1 billion per year, meaning that indemnities are projected to average about $1 billion less than total premiums per year. Figure 1 shows an overview of the program. Figure 2 shows the A&O subsidies and underwriting gains that the government paid to insurance companies for program delivery from 2000 through 2015. In 14 of these 16 years, companies had underwriting gains, with underwriting losses in 2002 and 2012. From 2000 through 2015, companies’ underwriting gains averaged $884 million per year. From 2011 through 2015—the first 5 years in which the 2011 SRA has been in in effect—companies’ underwriting gains averaged $773 million per year. As of March 2017, preliminary RMA information indicates that 2016 underwriting gains will be about $2.6 billion. If 2016 underwriting gains were $2.6 billion, then during the 6 years in which the 2011 SRA has been in effect, companies’ underwriting gains would average about $1.1 billion per year. As mentioned above, CBO projected that A&O subsidies and companies’ underwriting gains would average about $1.4 billion and $1.3 billion, respectively, per year from 2017 through 2026. Thus, projected federal payments to the companies for delivering the federal crop insurance program would comprise about one-third of projected total program costs, which CBO projected would be about $7.9 billion per year. A provision in the 2014 farm bill requires that any revised SRA is to be budget neutral with respect to estimates of future underwriting gains for the participating insurance companies, and the estimated total A&O subsidies cannot be less than the amounts that would have been provided under the previous SRA. The 2014 farm bill conference manager’s report states that a renegotiated SRA should not be used as a means of achieving further cuts in the federal crop insurance program. During the farm bill debate, according to a Congressional Research Service report, some Members of Congress argued that such cuts, if any, should be made by Congress so it could claim the budget savings toward either deficit reduction or to offset the cost of any new legislative initiative. In addition, the 2014 farm bill requires that if any SRA savings are realized, they have to be used to increase participating insurance companies’ underwriting gains or A&O payments. The conference report to the 2014 farm bill noted that crop insurance funding had been reduced over the previous 6 years, including in the 2008 farm bill and the 2011 SRA. In part to improve the government’s ability to ensure the integrity of the federal crop insurance program, Congress passed the Agricultural Risk Protection Act of 2000. The act provided RMA with new tools for monitoring and controlling program abuses. Among other things, the act required the Secretary of Agriculture to use data mining—a technique for extracting knowledge from large volumes of data that was made possible by advances in computing—to administer and enforce the crop insurance program. RMA uses data mining to detect potential cases of fraud, waste, or abuse. For example, RMA and the insurance companies use data mining results to conduct reviews of policies with anomalous loss claim payments. According to RMA documents, RMA’s data mining efforts have improved program monitoring. RMA estimates that from 2001 through 2014, its data mining to identify anomalous policies resulted in $1.1 billion in cumulative cost avoidance—or, reduction in the amount of indemnities claimed (i.e., losses claimed by farmers). The 2011 SRA’s cap on A&O expense subsidies—payments to insurance companies to cover the cost of selling and servicing crop insurance policies—stabilized the program’s overall costs, but subsidies have fluctuated widely by crop, state, and county. When negotiating the 2011 SRA, RMA adjusted the A&O subsidy calculation method by applying a national cap on the overall annual A&O subsidies. The cap was successful in stabilizing the overall subsidy amount. However, the revised calculation method has allowed changes in crop prices to result in substantial fluctuations in the subsidies for many crops as well as states and counties. For example, the average A&O subsidy per policy in California decreased by 32 percent from 2010 to 2011, when the subsidy declined for two of the state’s leading insured crops, almonds and grapes. The average A&O subsidy per policy in California increased by 66 percent from 2013 to 2014, when the subsidy for almonds and grapes and other crops produced in California increased. In developing the 2011 SRA, RMA sought to stabilize A&O subsidies to help make the program more sustainable over time. To control government costs and stabilize fluctuations in A&O subsidies from year to year, RMA considered revisions to the A&O subsidy calculation method when negotiating the 2011 SRA and ultimately chose to apply a national A&O subsidy cap. Specifically, through a revised subsidy calculation method, RMA capped annual A&O subsidies for the most commonly used types of policies and set a minimum annual subsidy for these policy types. The cap controls government costs when crop prices rise, and the minimum protects companies against low market prices.