NU Online News Service, April 7, 2:50 p.m.EDT

Crop insurers are challenging a new study on their profitabilitycommissioned by the U.S. Department of Agriculture, saying it ismisleading and should not be used to set the rate of return forcrop insurers participating in the Federal Crop InsuranceProgram.

The issue is critical for crop insurers and agents. Underpressure to provide additional funding for a food nutritionprogram, the U.S. Agriculture Department is proposing to slash thesubsidies it provides to the crop insurance program.

The department's risk management agency is circulating its thirdproposal with National Crop Insurance Services, Overland Park,Kan., which represents the 16 crop insurers. In a statementreleased Friday, RMA officials said they hope to completediscussions with the NCIS on behalf of the insurers this month.

The statement said RMAs goal is to have a contract signed by allparties by the end of June 2010, as provided by the 2008 farmbill.

The updated report includes data for 2009 and shows that thereturn on equity for the insurers during 2009 was 26.4 percent, thesecond highest return in the past 21 years and well above thereasonable rate of return for 2009–10.7 percent.

Moreover, the study says, over the past 21 years, the cropinsurance companies averaged a 17 percent return when thereasonable rate for that period was 12.7 percent.

The study was prepared by Milliman Inc., a consulting firm.

But, in a statement, NCIS said that looking only at 2009 profitsin establishing new rates is inappropriate, because the 2009numbers are "more reflective of record-high crop yields thanindicative of the future profitability of the crop insuranceindustry."

In its statement, the NCIS said that a "proper, longer-term viewof industry performance" is more appropriate than looking at asingle year's profitability in determining industryperformance.

"RMA understands too well that conclusions can't be drawn fromdata representing such a narrow timeframe," the NCIS statementadded.

"A long-term view is essential when analyzing a program based ona private insurance model, where any year's returns can vary due toweather or fluctuating crop prices," NCIS officials said.

The industry statement said that beyond the obvious concern withusing one year of data to judge the financial performance of theindustry, it also questions the analytical methods the agency isusing to estimate rates of return on equity.

NCIS officials said the methods have been challenged by the cropinsurance industry in the past "and are not a reasonable basis forestimating expected returns to the industry."

In fact, NCIS officials said in their statement, "Millimanitself cautions against drawing any strong conclusions on theadequacy or excessiveness of the historical returns."

Moreover, the statement said, "This is particularly relevant inthis case, as their analysis also fails to take into account the$6.4 billion in funds that Congress already cut from the cropinsurance program in the 2008 farm bill."

Charles E. Symington, Jr., Independent Insurance Agents andBrokers of America senior vice president of government affairs,said, "While well-intended, the current SRA draft contains somealarming proposals that could potentially cause more harm thangood."

"There are over 18,000 crop insurance agents across the countrywho are mostly small business owners in rural towns. These agentsprovide jobs and are active in their communities. Furthermore, thecrop program depicts a delicate balance between America's farmersand ranchers and the federal government. This balance has served asa necessary safety net for our agricultural community whileenabling American farmland to flourish. In this time of greateconomic strain, it seems imprudent to fundamentally alter asuccessful program," he concluded.