Statement of

Kenneth D. Ackerman
Administrator, Risk Management Agency
United States Department of Agriculture

before the Senate Agriculture, Nutrition and Forestry Committee

April 17, 1997

Mr. Chairman and Members of the Committee, I am pleased to appear before you today on behalf of the United States Department of Agriculture (USDA). In our testimony, we will address two major topics: (1) the proposed Standard Reinsurance Agreement (SRA) with the crop insurance industry and (2) our experience with, and future plans for, revenue insurance products.

Before I begin my detailed testimony on these issues, I want to express our full commitment to the private sector delivery system. We would not have the successful program we have today without the dedication and superior performance of the private insurance companies. The implementation of crop insurance reform, the doubling of crop insurance policies sold, and the development of innovative new products are prime examples of the results we can achieve through our successful public-private partnership. Our goal in renegotiating the SRA is to assure continuation of this successful partnership in a manner that is fair to both taxpayers and insurance companies. STANDARD REINSURANCE AGREEMENT

The draft SRA reflects the joint study conducted by the General Accounting Office (GAO) and the Federal Crop Insurance Corporation (FCIC), as described earlier by Director Robinson. As required by the Federal Crop Insurance Reform Act of 1994 (1994 Act), our role in this study was to report on the subjects of alternative forms of reinsurance and a reasonable rate of return on capital. We also participated with GAO in developing the methodology for the review of administrative expenses. We will give strong consideration to the insurance industry's response to this report before making any final decisions. However, we do believe that the report's recommendations provide a strong informational basis for us to go forward with FCIC/industry discussions on the changes proposed in the SRA and also reflected in the President's 1998 budget proposal.

The SRA is the contract that governs the relationship between FCIC and the insurance companies delivering the Federal crop insurance program. This agreement continues each year unless it is canceled by FCIC at least 180 days in advance of the July 1 annual renewal date. The SRA is not simply a private business arrangement between insurance companies and FCIC. Rather, it is an important public document that determines the expenditure of almost $2 billion in taxpayer funds each year. The SRA has a direct bearing on the Federal budget and impacts all sectors of the agricultural community.

Since the full SRA was last renegotiated in 1994, the crop insurance program has changed dramatically. Following the enactment of the 1994 Act, the program has more than doubled in size in terms of policies sold, acres covered, and premiums collected. At the same time, the program loss ratios have improved dramatically. New and profitable products were introduced into the marketing mix. Beginning with the 1995 crop year, catastrophic risk protection (CAT) coverage was offered. The 1996 crop year saw the introduction of revenue-based plans of insurance, a trend likely to continue and grow in the future.

The 1995 SRA was extended, with some modifications, for 1996 and 1997 to maintain the stability of the Federal crop insurance program during a time of major change. This year, however, FCIC elected to renegotiate the SRA to resolve systematically a wide range of issues. A proposed agreement was sent to insurance companies and other interested parties on March 20, 1997. FCIC met with companies, agents organizations, and reinsurers in a public meeting to discuss the draft 1998 SRA on April 3, in Kansas City. Last week, these groups posed questions, and FCIC has responded orally and in writing. Formal industry comments are due from companies by April 25. FCIC will review these comments, discuss them with the companies, and make adjustments to the agreement before issuing the final version. The signed agreements will be due back to FCIC from the companies by July 1, 1997, which marks the beginning of the 1998 reinsurance year.

Today, I would like to highlight in detail four of the major changes proposed in the 1998 SRA : (1) Administrative Expense Reimbursement (AER), (2) Underwriting Gains and Losses, (3) Program Changes and (4) Program Integrity. For your reference, I have also attached several informational charts and tables to my written statement.

(1) Administrative Expense Reimbursement

The SRA and governing statutes require that the AER be calculated as an industry-wide percentage of net book premium. Current law caps the AER at 29 percent of premium for the 1997 reinsurance year, falling to 28 percent in 1998 and 27.5 percent in 1999. As Director Robinson described in his statement, the joint FCIC and GAO report shows that companies are actually spending between 25 and 27 percent, on average, for administrative expenses. The report proposes that AER be reduced from 27 percent to 24 percent beginning in 1998 to reflect increases in premium rates and crop prices. In the fiscal year (FY) 1998 Budget, USDA has proposed an industry-wide AER ceiling of 24.5 percent.

With the sharp growth in participation, total administrative expenses have increased 65 percent from 1994 to 1996 ($282 million AER in FY 1994 vs. $377 million AER in FY 1995, and $466 million AER in FY 1996). Using 24.5 percent yields an industry-wide total of about $410 million, which is still higher than the level for 1995 and all previous years.

FCIC is also proposing a change in the AER structure. Data suggests that companies spend about $75 - $125 to administer the average crop policy, not including the agent's commission of about 16 percent of premium. The 1998 draft SRA provides a composite AER with two components: (1) $100 per policy; and (2) 18 percent of gross premium.

This structure averages approximately 24.5 percent of premium but generates more AER to policies with lower premiums than the current structure; thus is expected to stimulate sales to smaller farming operations. For example, a 1998 policy with a $500 premium might generate about $122 in AER using a flat percentage, but about $190 using the composite method. Approximately 47 percent of FCIC's buy-up policies generate less than $500 of premium per policy.

At this time, I would like to take a moment to update the Committee on the steps we have taken with regard to simplification and paperwork reduction. The 1994 Act required FCIC to submit a plan to Congress outlining measures that will be used to reduce the administrative and operating costs of reinsured companies in an amount that corresponds to reductions in the reimbursement rate. Attached as Exhibit A is information contained in our Report to Congress, which outlines the procedures used by FCIC and the reinsured companies to identify and evaluate the over 100 simplification suggestions received in response to our general request for comments. A total of 43 specific actions have been defined. Of those items, 29 have been implemented; 10 are in the process of being implemented; and 4 are being evaluated. Exhibit B describes these specific actions in detail.

Because of the nature of the procedures involved, it is not possible to quantify accurately the savings generated by implementing these simplification actions. However, it appears, that the actual potential savings of these identified steps may be significant to both FCIC and the companies. Included among the 29 actions which have been implemented, FCIC has restructured actuarial documents to provide pertinent legally binding information on fewer pages which reduced the number of pages printed each year by one-third, or approximately 2 million pages; established an Internet web site to serve the insurance companies, reduce paper flow between companies and FCIC, and speed communications; approved combined forms on a company-by-company basis; and combined policy dates (i.e. sales closing, acreage reporting, cancellation, etc.) where possible to make it simpler for farmers, agents, and others to perform all required tasks in a timely manner.

When we declined to implement a suggestion, it was because the change was unacceptably adverse to policyholders. For instance, a suggestion that FCIC institute a one-page CAT insurance policy would, indeed, result in reduced postage and handling costs. However, it would also delete many policy provisions that provide important insurance benefits to policyholders when special circumstances occur or that prohibit the payment of unnecessary and improper losses.

FCIC has taken its simplification mandate very seriously, while also recognizing that we must weigh actuarial soundness and the potential adverse impact of any such efforts on farmers as we consider what steps to take.

(2) Underwriting Gains and Losses

The 1995 SRA was negotiated in early 1994 after crop insurance companies had absorbed $82 million in losses due primarily to heavy rains and a cool, cloudy growing season in the Midwest. Analysis by FCIC and USDA's Office of the Chief Economist suggests that the current SRA gain/loss formula, which has been in place beginning with the 1995 crop year, provides an unacceptable return compared with the underwriting risk.

For purposes of comparability, FCIC, in its SRA analysis, has used Return on Capital at Risk (ROCR) as a standard measurement for comparing the rate of return on different SRA gain/loss formulas. ROCR measures the dollar amount of profit or loss as a percent of the capital that the reinsured company has at risk. Capital at risk is the company's maximum possible underwriting loss, a term defined in the Code of Federal Regulations and used by FCIC when it analyzes the financial capacity of the companies.

The 1995 SRA was intended to provide a 7-8 percent pre-tax gain over a 5 to 10-year period on retained premium. With two full years of actual experience under the 1995 SRA, analysis now suggests that the current formula could result in a long-term, expected (1957 - 1995) ROCR of 24 percent for seven program crops, far above experience in related industries. In fact, the ROCR for crop years 1995 and 1996 are 27 percent and 36 percent, respectively.

There are several reasons that gains are exceeding expected levels. Analysis underlying the 1995 SRA used insurance data that included 2 very poor years in the Midwest (1990 and 1993). 1995 and 1996 are two of the best crop years on record. Also, dramatic growth in participation has resulted in improved geographic dispersion of risk. In addition, FCIC has instituted major improvements in determining Actual Production History yields beginning with the 1994 crop year; and increased premium rates have resulted in greater premium income and lower loss ratios.

In the 1998 draft SRA, FCIC is proposing to reduce the expected ROCR to attain appropriate levels. The ROCR target is based on comparison with two key benchmarks: (1) rates of return for similar, related industries and (2) rates of return under pre-1995 crop insurance SRAs.

A comparison for Federal crop insurance is with the overall Property and Casualty Insurance industry. For this industry, the 10-year average return on equity (ROE - a measurement conceptually similar to ROCR) has been 13.8.

Long-term expected ROCR was also calculated under terms and conditions of SRAs in effect prior to 1995. The calculations showed a rate that was consistently in the low to mid-teens: 16 percent for the 1992 SRA; 12 percent for the 1993 SRA; and 13 percent for the 1994 SRA.

The 1998 draft also includes special treatment for CAT and revenue insurance products, which have expected loss patterns different from buy-up coverage. Rather than creating different gain and stop-loss factors for these products, a process that would add complexity to the program, FCIC is proposing a fixed reinsurance premium (FRP) of 9 percent on retained premium in the commercial fund for CAT and 3 percent on retained premium in the commercial fund for the three revenue plans. The impact is to shift more risk to the private sector. The FRP has been set at conservative levels, but will be re-evaluated and adjusted for future years as more data becomes available.

(3) Program Changes

In the past, companies have objected to the lack of provision for additional reimbursement for program changes after the contract change date necessitated by special circumstances such as unusual disasters, which require changes to be made. In some cases, late changes can create documented additional levels of cost and business risk to companies. We have proposed in the 1998 SRA to pay quantum meruit as damages to the companies if an FCIC change after the contract change date causes a material increase in the cost of performance of work required under the SRA. Companies will be required to prove all such additional costs.

(4) Program Integrity

The proposed SRA contains provisions allowing the imposition of "liquidated damages" to compensate FCIC for the damages it suffers when a company does not comply with program requirements. This proposal is designed both to simplify compliance determinations and make SRA terms more enforceable. Liquidated damages, in mutually agreed amounts, would reduce or subtract the amount of AER associated with the violation. For example, if a claim has not been adjusted correctly, FCIC would reduce the amount of AER associated with adjusting the claim on a particular crop insurance policy in addition to requiring the company to correct the claim to the policyholder. When FCIC requires reinsured companies to conduct a quality assurance review and the company fails to do so, FCIC would reduce the amount of AER by the amount associated with that violation. REVENUE INSURANCE

I would now like to shift the focus of the discussion to FCIC's experience with, and plans for, revenue insurance. Revenue insurance has been a focal point of crop insurance discussions since the 1994 Act authorized a pilot program of insurance to cover costs of production. The discussion has intensified since passage of the 1996 Act. Today, I will describe the different forms of revenue insurance; the authorities available or required to offer it; the current status of approved revenue insurance plans; the 1997 expansion of revenue insurance products; FCIC's experience; and issues related to the development of revenue products by FCIC or the approval of those developed by the private sector. Additionally, I will describe a regulation that FCIC will propose for the review and approval of any product, privately or internally developed, by the FCIC Board of Directors (Board).

Revenue Insurance -- What Is It?

Traditional crop insurance compensates producers only when the yield in any year falls below some threshold amount. Once this threshold is reached, the loss in yield below the threshold is compensated at a price that was fixed several weeks or months before planting began. In this example, the only trigger for an indemnity payment is the yield. If yield in a year exceeds the threshold, no indemnity is due, even though price may have declined materially during the growing season.

Many producers and lenders feel that this single trigger approach is insufficient, arguing that it makes loans much more difficult to collateralize, and revenue more difficult to predict, because there is no guarantee that a minimum specific sum of money will be available at the end of the growing season.

During the past several years, there have been repeated calls for "cost of production" insurance. When these requests are analyzed, it is clear that interested groups want two triggers to establish an indemnity payment: price and yield. In this case, a payment is due to the producer whenever revenue (determined by multiplying the production to count by a specified price) drops below a threshold (determined by multiplying the unit guarantee by the specified price) due to a decline in either or both variables (price or yield). This provides a measure of financial security not available with traditional yield-based triggers.

Cost of production varies significantly by producer, by crop, and by region of the country. Consequently, most revenue insurance products gravitate toward a guarantee based on a price contained in public markets to be used in conjunction with an individual producer's proven yield history.

Revenue insurance products generally are cataloged as one of the following three types: (1) Pure revenue insurance establishes a target level of income before the crop is planted. Producers can select a deductible amount of revenue loss that they are willing to assume, much like you or I are willing to assume the first $250, $500, or other choice of loss due to collision damage on our personal automobile. Whenever annual revenue loss exceeds this deductible, whether due to loss of yield or decline in price, an indemnity is due.

(2) Replacement cost coverage appeals most to those producers who sell part of their crop before harvest, and in some cases before planting, or who expect to produce part or all of the feed needed for livestock on the same farming operation. In either case, the producer who suffers a loss of yield is forced to buy a replacement for the commodity on the open market. If prices have increased, these producers will incur higher costs and have lower revenues than anticipated before the crop was planted.

(3) The third category is a hybrid which combines pure revenue insurance with replacement cost coverage.

Authorities for Revenue Insurance

The 1994 Act added paragraph 6 to section 508(h) of the Federal Crop Insurance Act (FCIA) which directed FCIC to offer a pilot program of cost of production insurance for the 1996 and 1997 crop years in a sufficient number of counties to determine the feasibility of the insurance and producers' demand for it. The authorizing language identified losses as falling below a threshold level gross revenue but did not define "cost of production."

The 1996 Act further amended the FCIA to direct FCIC to offer revenue insurance on a pilot basis in a "limited" number of counties for the crop years 1997, 1998, 1999, and 2000. The term "revenue insurance" was not defined. While the scope of the term "pilot" may be subject to interpretation, present law provides no authority for a Federal revenue product after the year 2000.

In addition, section 508(h) of the FCIA allows FCIC to approve products presented by a private company incorporating features that go beyond the basic program. This authority is the basis for our approval of Crop Revenue Coverage (CRC) and Revenue Assurance (RA), described below.

In summary, FCIC presently can offer a nationwide revenue insurance plan only if it is submitted by a private person under the FCIA. FCIC's own authorities to offer revenue insurance are limited to the pilot programs for cost of production coverage (expiring after the 1997 crop year) and the revenue insurance pilot program that expires after crop year 2000.

Current Status of Approved Revenue Insurance Plans

For 1997, there were three major initiatives on revenue insurance: Crop Revenue Coverage (CRC), Revenue Assurance (RA), and Income Protection (IP). Because CRC and RA include basic concepts contained in IP, I will describe IP first.

Income Protection (IP)

For the 1996 crop year, FCIC developed the IP plan of insurance to implement the cost of production pilot. This plan was extended to other crops and states for the 1997 crop year. IP bases the revenue guarantee on the producer's proven yield and a price derived from a specific contract on a commodity futures market. The same price is used for all regions of the country for a crop. This product offers only enterprise unit coverage, and all land in a crop, whether owned, cash rented, or rented by crop shares, is insured under a single revenue guarantee. Typically, IP is offered on only one crop in most counties where available due to its pilot nature. Therefore, whole farm coverage has not been considered under this plan.

IP differs from the standard yield-based multiple peril product in that losses in yield may be partially or wholly offset by increases in the price. Conversely, the yield loss may result in a larger revenue loss if prices have declined over the course of the growing season. There is a small chance that a loss will be paid when production exceeds the guarantee. This can happen when the price declines significantly between planting and harvest.

Premium rates are estimated by means of a large probability model that incorporates individual producer yields, a long series of county average yields, and historical prices. Price volatility, a key variable influencing the level of the premium rates in any year, is based on the historical variation of prices between the time of planting and the time of harvest. Premiums tend to be lower than for the standard yield-based coverage.

For the 1996 crop year, IP was available for corn, cotton, and spring wheat in 30 counties in Indiana, Illinois, Iowa, Minnesota, and North Dakota. About 1,000 policies were purchased, covering about 218,000 net acres with total premiums of about $3.4 million. For the 1997 crop year, the IP pilot is available for corn, cotton, grain sorghum, soybeans, spring wheat, and winter wheat in 159 counties in the original states plus all of Arkansas, Kansas, Montana, and Texas. Data for the 1997 crop year is not yet available. Crop Revenue Coverage (CRC)

CRC, a hybrid revenue product, was presented to the Board by a private insurance company, and was approved for producer premium subsidy, administrative expense reimbursement, and reinsurance beginning with the 1996 crop year. CRC combines the standard yield-based multiple-peril contract with Market Value Protection coverage (MVP is sold as a rider or endorsement to a standard yield-based multiple peril crop insurance contract. It pays an additional amount to the producer whenever there is a loss in yield and the market price has increased between planting and harvest) and pure revenue insurance on a field by field (unit) basis.

Losses under CRC will always be at least equal to the losses that would be paid under the standard yield-based coverage. The losses will be the same in the event that the prices at time of planting and at time of harvest are exactly equal. For downside price movements, the relative losses under CRC will be similar to those under IP if the unit configuration is the same. If price increases, and there is a loss in yield, the additional payment under CRC will be the same as under the MVP plan.

Premium rates for CRC use the rates for the standard yield-based program to generate three-fourths or more of the total premium. A surcharge is generated by incorporating price variability. The amount of the surcharge depends on the underlying premium rate for the yield-based coverage and the historical volatility of prices for the crop and futures market used to discover price. Prices from several different futures markets and delivery months are used, depending on the crop, region of the country, and type of the crop (winter wheat versus spring wheat, for example).

For the 1996 crop year, CRC was available for corn and soybeans in all counties in Iowa and Nebraska. About 92,000 policies were purchased, with about 84,000 filing acreage reports. This product covered 11.2 million net acres (nearly 40 percent of net insured acres of corn and soybeans in these states) with total premiums of about $145 million. For the 1997 crop year, sales were approved for corn and soybeans in all counties in Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, Ohio, Oklahoma, South Dakota, and Texas, and for corn only in Colorado. In addition, for the 1997 crop year, sales were approved for the following crops and states: COTTON GRAIN SORGHUM Arizona all counties Colorado all counties Georgia all counties Nebraska all counties Oklahoma all counties Oklahoma all counties Texas selected counties Kansas selected counties Missouri selected counties South Dakota selected counties

SPRING WHEAT WINTER WHEAT

Minnesota all counties Kansas all counties Montana selected counties Michigan all counties North Dakota selected counties Nebraska all counties South Dakota all counties Texas all counties Washington selected counties Revenue Assurance

RA, a pure revenue product, was also presented to the Board by a private insurance company. It was approved for producer premium subsidy, administrative expense reimbursement, and reinsurance beginning with the 1997 crop year. RA encompasses many pure revenue insurance forms: revenue guarantees may be established by field, enterprise unit, or whole farm coverage for corn and soybeans.

Losses under RA will differ from those under IP and CRC when the market price declines. RA uses the posted county price, a value estimated by USDA for the purposes of administering the commodity loan programs. Posted county prices for Iowa are derived by subtracting a "basis" from a market price measured at either Gulf or Kansas City terminals. The basis is an estimate of the cost of handling and transporting the grain from the point of origin to the specified destination. Posted county prices are announced daily by the Farm Service Agency. To establish the revenue guarantee under RA, the price is estimated in the spring by subtracting a historical basis from a price observed on a commodity futures market. Because it reflects local conditions, the posted county price will typically be less than the price announced for CRC and IP calculations.

Premium rates for RA are estimated from a large scale probability model that uses individual producer yields, but relates these only to 10 years of county average yields. It assumes specific probability distributions for yield and price whereas IP does not. RA uses a current year measure of the implicit volatility of prices estimated with an options pricing model. RA is approved for sale in all counties of Iowa for corn and soybeans for the 1997 crop year.

1997 Expansion of Revenue Insurance Products

The large expansion in 1997 dramatized many issues about revenue insurance, particularly the need to satisfy wide-scale customer demand, balanced against our limited experience with the associated insurance risks. As a result, FCIC insisted that the expansion of revenue insurance products be tied to several important conditions: (1) premium rates were adjusted to reflect the outcome of a peer review process which focused on assuring actuarial soundness; (2) companies were required to carry more of the new underwriting risks created by the price-sensitive element of revenue insurance; (3) AER paid to companies for revenue insurance products was reduced from 29 percent to 25 percent of net book premium, reflecting a reduced rate for the price-risk element of these policies; (4) products were made available only in a limited area in their initial year; (5) a Memorandum of Understanding was required outlining the responsibilities of FCIC and the private company submitting the product; and (6) the FCIC Board waited until sufficient experience from the 1996 pilot on corn and soybeans was collected before expanding these programs to determine whether unexpected operational or underwriting problems had occurred.

Experience of Revenue Insurance Products

Experience with revenue insurance products is favorable in terms of the response this idea has generated from producers. At each point where we have considered proposals for expansion, revenue insurance in its different forms has sparked the interest of the American farm community as addressing a vital need for risk protection. Sales data for 1996 corn and soybeans in Iowa and Nebraska were particularly strong. As mentioned above, approximately 92,000 CRC policies were purchased during the 1996 crop year, and the product covered 11.2 million net acres in the two States. Sales on winter wheat CRC in the seven states where it was approved for the 1997 crop year show less of a pattern. To date, about 21,200 policies have been purchased. This product covered 5.6 million net acres (nearly 20 percent of net insured acres) with total premiums of about $35.5 million. Data for the 1997 spring sales period is not yet available.

With respect to underwriting, we have results for only one year -- the 1996 pilot on corn and soybeans in Iowa and Nebraska. Losses of about $48 million had been reported to FCIC for CRC for corn and soybeans in Iowa and Nebraska as of mid-April for a loss ratio of 0.34. In contrast, reported losses for standard yield-based coverage for those producers who bought greater than the catastrophic coverage level were about $26 million with a loss ratio of 0.30. By mid-April, most loss activity has been completed and reported to FCIC. In mid-April, losses of about $96,000 (loss ratio 0.08) had been reported for corn, $298,000 (0.20) for cotton, and $619,000 (0.35) for wheat under IP. Since IP is offered only in isolated counties, its loss ratio can differ materially from the more aggregated loss ratios for the other products that are offered on a national basis.

Issues and Resources

There has been great demand for the revenue insurance concept. The Administration is responding to these demands by seeking legislative authority to offer revenue insurance nationwide as a Federal program. Implementation of this new authority will occur in an orderly way, mindful of our responsibility to maintain the actuarial soundness of the crop insurance program. We will not limit our plans to a specific product which is already available, but will be responsive to new ideas and producer needs.

A consideration for expanded availability of revenue insurance is its budgetary impact. To date, producer premium subsidies for the portion of the premium covering the risk component of revenue insurance products have been limited to the amount that would been paid had the producer purchased a standard yield-based coverage plan. The producer premium subsidy for IP and RA generally is less than the yield-based plan because the total premium for these products is often lower. For CRC, the producer premium subsidy is the same as the yield-based plan. Thus, the total cost of revenue products to taxpayers for the producer premium subsidy is less than it would have been if the same producers had purchased yield-based coverage.

With regard to delivery expenses, the costs to taxpayers for IP and RA again are lower in most cases because the premium is lower. For CRC, the total reimbursement for delivery expenses is about 8 percent greater than for an equivalent yield-based policy.

It is clear that future budgetary costs for revenue products is dependent on (1) the mix of revenue products ultimately sold and (2) total participation. Higher sales of CRC will increase costs, while greater market penetration by products such as IP and RA will reduce costs.

Under the legislative proposal, the President's fiscal year 1998 budget assumes an increase in total budget authority of $26 million, of which $16 million is for premium subsidy and $10 million is for reimbursable administrative expenses associated with nationwide expansion of revenue insurance. The total premium is estimated to increase by $47 million due to this expansion. The Administration assumes an increase in total participation on the order of 5 percent of acreage for all crops. Most of the increase is assumed to be in CRC. To offset the costs associated with these assumptions, the Administration proposes that the statutory loss ratio target be reduced. Other modifications to mandatory programs also are proposed to fund part of the mandatory expenses associated with expansion of revenue insurance. The proposal is budget neutral.

Private Sector Products

We are committed to encouraging private companies to develop new, innovative products. However, it is clear that the process must be more orderly. Experience has demonstrated certain shortcomings with regard to submitting and approving private sector products under the authority enacted in 1990.

In the near future, FCIC will also propose a regulation to provide guidelines for the submission of crop insurance policies. The regulation will require companies to meet all established guidelines before a submission will be presented to the Board for approval. The rule describes in detail the dates by which a submission must be received for sales for a crop year and material that must be included in the submission. In addition, the rule describes FCIC's review process; the presentation to the Board; and FCIC's processes for continuing review, evaluation and maintenance of an approved submission. The applicant's responsibilities are also described in the rule. The proposed rule is undergoing legal and other reviews, and it will be published in the Federal Register for public comment as soon as possible. The introduction of revenue insurance products has helped fill the void caused by the elimination of traditional Federal programs which provided a safety net to farmers in times of disaster. These products have helped FCIC and private insurance companies increase participation in the crop insurance program. At the same time, overall losses have decreased in part due to systematic rate increases and improvements in the policy provisions. As a result, the insurance pool is larger and more profitable.

I appreciate this opportunity to highlight FCIC's efforts to date in renegotiating the SRA and planning for the expansion of revenue insurance. Mr. Chairman, this concludes my testimony. I will be glad to answer any questions that you may have.