June 6-7, 2005
Crop Insurance
Overview of Primary Market in US
Susan Witcraft
Minneapolis
U.S. Crop Insurance
Three Classes of Business
MPCI (Multiple Peril Crop Insurance)

Government supported program.

Rates, policy forms, underwriting guidelines and loss adjusting procedures are
all established by the Federal Crop Insurance Corporation (FCIC).

FCIC offers attractive inuring reinsurance protections.

The Policy is “Yield” or “Revenue” based covering “All Perils”.
Crop Hail

Traditional crop insurance that has been around since the early 1900’s.

Policy covers only Hail and Allied Coverages.

Policy structured as a “percentage of insured value” basis.
Named Peril

Single peril coverage on specific crops or MPCI Add On / Deductible
Protection.
Guy Carpenter
2
Crop Insurance Industry
2004 Gross Premium Breakdown Estimate
Named Peril
$15M
MPCI
Guy Carpenter
Crop Hail
$427M
$4.2B
3
MPCI
Multiple Peril Crop Insurance (MPCI)
Loss Breakdown by Peril 1981 - 2004
Other
15%
Disease
4%
Heat
4%
Disease
Freeze
5%
Heat
Freeze
Excess Moisture
Hail
Drought
Other
Excess Moisture
24%
Drought
40%
Guy Carpenter
Hail
8%
5
MPCI Industry Overview
Definitions of Coverage Types
“Buy Up”
This is a production or yield based policy. This traditional type coverage utilizes a
farmer’s deductible level and individual Actual Production History (APH – 6- to 10year average yield) to determine coverage. The farmer chooses a coverage level
(ranging from 50% - 90%) and price election when buying a policy.
Catastrophe
This is also a production or yield based policy. This coverage was introduced by
the FCIC in 1995 after the 1993 MPCI loss as a further “subsidy” to the market.
The policy offers 50% coverage at 60% of the MPCI price election.
Guy Carpenter
6
MPCI Industry Overview
Definitions of Coverage Types
“Buy-Up” Insurance Example (Iowa Corn)
Individual Farmer APH
Year
APH
1993
80
1994
125
1995
150
1996
150
1997
145
1998
140
1999
130
2000
120
2001
60
2002
100
Average APH 120
Guy Carpenter
2003 Purchased Policy
MPCI Level
70%
Price Election
2.40
Amount of Insurance:$201.60
2003 Payout
2003 Actual Production: 75
Payout: 120 (APH) * 70% (Coverage Level) = 84
84 - 75 (2003 Yield) = 9 bushel loss per acre
9 * $2.40 (price election) = $21.60 Insurance loss
payment per acre
7
Industry Overview
Definitions of MPCI Coverage Types
Revenue (CRC or RA)
This is a revenue protection policy. This coverage was first introduced to the
market in 1996 for corn and soybeans in the states of Iowa and Nebraska. The
FCIC has expanded this coverage for other crops and in nearly all states. The
revenue coverage guarantee is determined using the farmers APH and Chicago
Board of Trade (CBOT) commodity prices.
CRC Insurance Example
CRC Policy Wording Definitions
Minimum Guarantee - APH multiplied by the Base Price multiplied by the coverage level elected.
Harvest Guarantee - APH multiplied by the Harvest Price multiplied by the coverage level elected.
Final Guarantee - Greater of the Minimum or Harvest Guarantee.
Assumptions
APH = 150
CBOT Price = $2.50
Coverage Level = 70%
Minimum Guarantee = $262.50
Guy Carpenter
8
Industry Overview
Definitions of MPCI Coverage Types
CRC Insurance Example
Example 1 - “2002 Type Scenario” - Yield  CBOT price 
Actual
Yield
80
Minimum
Guarantee
$262.50
Harvest
Price
$2.75
Harvest
Guarantee
$288.75
Final
Guarantee
$288.75
Actual
Revenue*
$220.00
$ Loss
Per Acre
$68.75
Example 2 - “2001 Type Scenario in Nebraska” - Yield  CBOT price 
Actual
Yield
80
Minimum
Guarantee
$262.50
Harvest
Price
$2.25
Harvest
Guarantee
$236.25
Final
Guarantee
$262.50
Actual
Revenue*
$180.00
$ Loss
Per Acre
$82.50
* Current Yield multiplied by Harvest Price
Guy Carpenter
9
Industry Overview
Definitions of MPCI Coverage Types
CRC Insurance Example
Example 3 - “1994 Type Scenario” - Yield  CBOT price 
Actual
Yield
175
Minimum
Guarantee
$262.50
Harvest
Price
$2.25
Harvest
Guarantee
$236.25
Final
Guarantee
$262.50
Actual
Revenue*
$393.75
$ Loss
Per Acre
$0
Actual
Revenue*
$481.25
$ Loss
Per Acre
$0
Example 4 - Yield  CBOT price 
Actual
Yield
175
Minimum
Guarantee
$262.50
Harvest
Price
$2.75
Harvest
Guarantee
$288.75
Final
Guarantee
$288.75
* Current Yield multiplied by Harvest Price
Guy Carpenter
10
MPCI
Historical Perspective – “Late 1990’s”
$4,500,000,000
• Crop Insurance Reform and 1996 Farm bill spurred MPCI sales. FCIC
ceased to deliver the MPCI product under bill.
• Increased premium subsidy for farmers in 1999
• Introduction of Revenue products in 1996.
$4,000,000,000
$3,500,000,000
$3,000,000,000
$2,500,000,000
$2,000,000,000
$1,500,000,000
$1,000,000,000
Guy Carpenter
11
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
$0
1981
$500,000,000
MPCI
2004 Industry Gross Premium by State
AK
VT
WA
MT
ME
ND
MA
MN
OR
ID
NY
WI
SD
RI
MI
CT
WY
PA
IA
NE
NV
IL
IN
WV
CO
KS
NJ
OH
UT
CA
NH
MO
DE
VA
KY
MD
NC
TN
AZ
OK
NM
AR
SC
MS
TX
$0 to $25M
$25M to $50M
$50M to $100M
Greater than $100M
AL
GA
LA
FL
HI
Guy Carpenter
12
MPCI
Standard Reinsurance Agreement (SRA)



SRA - a Contract between the Government (FCIC) and the private
insurance company.
Proportional and non proportional reinsurances available.
The SRA allows ceding companies to cede or designate each crop
contract (policy) to one of the following seven funds:
– Assigned Risk
– Developmental – Cat
– Developmental – Buy-up
– Developmental – Revenue
– Commercial – Cat
– Commercial – Buy-up
– Commercial – Revenue

Ceding companies utilize historical experience, market knowledge and
underwriting models to determine the business they wish to retain and
the undesirable business they wish to cede to the FCIC.
Guy Carpenter
13
Standard Reinsurance Agreement
Proportional Reinsurance – A

Assigned Risk Fund
– Company’s less desirable business - “Social Fund”.
– FCIC sets cession limits by state, based on loss history.
– 75%-85% of the business is proportionately ceded to FCIC.

Developmental Fund
– Accommodates business where “uncertainty” exists or where Assigned
Risk limits are exceeded.
– Up to 65% of gross premiums can be ceded to FCIC.

Commercial Fund
– Accommodates a Company’s most profitable business.
– Highest profit potential and highest risk potential.
– Up to 50% of gross premiums can be ceded to FCIC.
Guy Carpenter
14
Standard Reinsurance Agreement
Non Proportional Reinsurance
94%
94%
100%
90%
70%
75%
70%
80%
57%
70%
60%
60%
50%
50%
50%
60%
50%
Loss Ratio Layer
Guy Carpenter
Unl x 500%
50% x 0%
0%
280% x 200%
10%
60% x 160%
20%
60% x 100%
30%
30%
11%
17%
30%11%
17%
23% 17%
25%
8%
25%
20%
6%
0%
20%
Commercial Revenue
11%
6%
0%
Commercial
Buy-Up
11%
0%
4%9% 15%
Commercial
Cat
11%
0%
Developmental Revenue
2%
5%
0%
Developmental
Buy-Up
4%
Fund
0%
Developmental Cat
2%
0%
Assigned Risk
35% x 65%
40%
43%
40%
40%
45%
15% x 50%
Participation
50%
50%
15
Standard Reinsurance Agreement
Non Proportional Reinsurance
60.00%
48.90%
31.50%
40.00%
20.00%
48.90%
7.60%
31.50%
37.75%
Maximum Net Loss By State
22.50%
0.00%
Maximum Net Gains By State
-20.00%
-11.00%
-40.00%
-60.00%
-57.80%
-57.80%
-62.30%
-80.00%
-100.00%
-101.60% -101.60%
-107.60%
-120.00%
Assigned Risk
Commercial - Buy-up
Guy Carpenter
Developmental - Buy-up
Commercial - Cat
Developmental - Cat
Commercial - Revenue
Developmental - Revenue
16
Net Gain/Loss
Standard Reinsurance Agreement
Effect on Net Gain/Loss of Non Proportional Reinsurance
50%
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%
-50%
-60%
-70%
-80%
-90%
-100%
-110%
0%
50%
100%
150%
200%
250%
300%
350%
400%
450%
500%
Gross Loss Ratio
Commercial Revenue
Developmental Cat/Buy-Up
Guy Carpenter
Commercial Cat/Buy-Up
Assigned Risk
Developmental Revenue
17
Standard Reinsurance Agreement
Proportional Reinsurance – B

FCIC assumes a 5% share of the total gain or loss of a
Company’s book of business.

Provision first introduced for the 2005 crop season.

Due to the profitable nature of the business, this provision is the
Government’s way of reducing their cost to service and manage
the MPCI Program.
Guy Carpenter
18
SRA
Gross U/W Gain Calculation Examples
Assigned Risk
Developmental (Buy-up)
Commercial (Buy-up)
Total
Gross
Premium
(000's)
Gross
Premium
(000's)
Gross
Loss
(000's)
Gross
LR
Gross
Premium
(000's)
Gross
Loss
(000's)
Gross
LR
Gross
Premium
(000's)
Gross
Loss
(000's)
Gross
LR
Gross
Premium
(000's)
Gross
Loss
(000's)
Gross
LR
MN
$2,000
$200
$320
160%
$0
$0
0%
$1,800
$900
50%
$2,000
$1,220
61%
IA
$2,000
$100
$100
100%
$200
$130
65%
$1,700
$1,105
65%
$2,000
$1,335
67%
CA
$4,000
$500
$500
100%
$500
$1,100
220%
$3,000
$3,000
100%
$4,000
$4,600
115%
TX
$7,000
$3,000
$6,600
220%
$2,000
$2,000
100%
$2,000
$1,300
65%
$7,000
$9,900
141%
$15,000
$3,800
$7,520
198%
$2,700
$3,230
120%
$8,500
$6,305
74%
$15,000
$17,055
114%
State
Total
Guy Carpenter
19
SRA
Net U/W Gain Calculation Examples
“After Proportional
Cessions”
Assigned Risk
Net
Premium Net Loss
State (000's) (000's) Net LR
Developmental Buy-up
Net
Premium
(000's)
Commercial Buy-up
Net
Net Loss
Premium Net Loss
(000's) Net LR (000's) (000's)
Net LR
Total
Net Premium Net Loss
(000's)
(000's) Net LR
MN
$50
$80
160%
$0 (1)
$0
0% $1,800
$900
50%
$1,850
$980
53%
IA
$25
$25
100%
$200 (1)
$130
65% $1,700
$1,105
65%
$1,925
$1,260
65%
CA
$65
$65
100%
$500 (1)
$1,100
220% $3,000
$3,000
100%
$3,565
$4,165
117%
TX
$450
$990
220%
$700 (2)
$700
100% $2,000
$1,300
65%
$3,150
$2,990
95%
Total
$590
$1,160
197%
$1,930
138% $8,500
$6,305
74%
$10,490
$9,395
90%
$1,400
(1) 100% Retained
(2) 35% Retained
Guy Carpenter
Overall Loss Ratio
Goes Down with
Proportional Cessions
20
SRA
Net U/W Gain Calculation Examples
“After Non-Proportional
Cessions”
Assigned Risk
Net
U/W
Premium Gain/Loss
State (000's) (000's) Net L/R
Developmental Buy-up
Net
Premium
(000's)
Commercial Buy-up
Total
U/W
Net
U/W
U/W
Gain/Loss
Premium Gain/Loss
Net PremiumGain/Loss
(000's) Net L/R (000's)
(000's) Net L/R
(000's)
(000's) Net L/R
MN
$50
($2)
103%
$0
$0
100%
$1,800
$781
57%
$1,850
$780
58%
IA
$25
$0
100%
$200
$42
79%
$1,700
$559
67%
$1,925
$601
69%
CA
$65
$0
100%
$500
($135)
127%
$3,000
$0
100%
$3,565
($135)
104%
TX
$450
($24)
105%
$700
$0
100%
$2,000
$658
67%
$3,150
$634
80%
Total
$590
($26)
104%
$1,400
($93)
113%
$8,500
$1,999
24%
$10,490
$1,880
82%
Total U/W Gain
18%
Overall Loss Ratio Goes
Down Further with NonProportional Cessions
Guy Carpenter
21
MPCI
Historical Industry Underwriting Results
Year
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Total
Gross Premium
$722,262,045
744,751,547
656,071,552
694,514,965
702,430,420
919,637,263
1,270,326,512
1,627,091,008
1,689,202,256
1,875,995,690
2,312,374,790
2,536,402,462
2,977,930,337
2,911,424,789
3,436,731,510
4,185,369,786
$29,262,516,932
Net Retained Premium
$352,456,663
408,584,026
445,059,562
465,872,117
434,847,472
536,602,513
768,499,418
1,155,072,581
1,263,143,481
1,591,730,382
1,836,870,180
1,893,524,050
2,372,197,462
2,294,612,548
2,606,792,668
3,139,784,617
$21,565,649,740
Underwriting Gain / Loss
$
%
$28,892,316
8.20%
51,134,007
12.51%
41,309,936
9.28%
21,811,739
4.68%
(83,326,250)
-19.16%
103,270,641
19.25%
132,302,113
17.22%
247,571,252
21.43%
352,070,977
27.87%
279,208,820
17.54%
271,756,850
14.79%
285,017,991
15.05%
349,821,584
14.75%
(36,262,528)
-1.58%
388,026,833
14.89%
549,462,308
17.50% *
$2,982,068,589
13.83%
*Estimated
Guy Carpenter
22
MPCI
Expenses
FCIC A&O Reimbursement Summary
40.0%
34.0%
35.0%
32.5%
31.0%
30.0%
27.5%
25.0%
22.0%
22.0%
22.0%
22.0%
22.0%
1999
2001
2002
2003
2004
20.0%
15.0%
10.0%
5.0%
0.0%
1991
1993
1995
1997
• Continued reduction in the A&O has put many companies in an operational deficit position
between 2 -10% of Net Retained Premiums.
Guy Carpenter
23
MPCI
Cash Flow Example
Iowa
Farmer
Insurance
Company / MGA /
Agent
Operating Account
 Premium Collections from Insured
 Monthly settlements with FCIC
 A & O Expense
Reimbursement
 Premium Due FCIC
• Funds most of the transactions like
payments for agent commissions,
LAE, etc.
• Settlement on 3/31 of following
year of U/W gain/loss from FCIC
Needs to purchase MPCI Policy
to protect Corn by no later than
March 15th for crops planted in
Summer of previous season
through Spring of current season
Escrow Account
FCIC
Losses
Premium
FCIC
Insurance
Company
Guy Carpenter / Reinsurer
Guy Carpenter
• In the name of FCIC to
fund claim payment
requests
• FCIC funds account
within 3 days of receiving
certified claim
• Insurance Company
funds their own claim
payment account from
escrow to pay the
Farmer
Reinsurance contract runs from 1/1 to 12/31
of current year and protects U/W after SRA
for crops planted through 3/15 of current year.
Single premium/loss transaction within 30
24
days after settlement with FCIC
Crop Hail
Guy Carpenter
25
Industry Growth
Historical Perspective
Crop Hail Industry Historical Premium
700,000,000
600,000,000
500,000,000
400,000,000
300,000,000
200,000,000
•
•
•
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
0
1988
100,000,000
Prior to the advent of the Multi-Peril Crop Insurance, Farmers managed their agricultural risk through Crop Hail
coverages and various disaster relief programs.
With the increased popularity of CRC coverages, and higher MPCI subsidies to the Farmer, Crop Hail
insurance products started to decline as a risk management tool.
With the profitability of MPCI business, ceding companies targeted growth in the MPCI class by offering
agents more competitive hail products.
Guy Carpenter
26
Crop Hail
2004 Industry Premium by State
VT
WA
MT
ME
ND
MA
MN
OR
ID
NY
WI
SD
RI
MI
CT
WY
PA
IA
NE
NV
IL
CO
IN
DE
WV
KS
NJ
OH
UT
CA
NH
MO
VA
KY
MD
NC
TN
AZ
OK
NM
AR
SC
MS
$0 to $1M
$1M to $5M
$5M to $10M
Greater than $10M
Guy Carpenter
TX
AL
GA
LA
FL
27
Crop Hail
Historical Industry Premium and Loss Ratios
Year
Premium
Loss Ratio
Year
Premium
1988
362,842,000
36%
1996
630,965,000
72%
1989
374,948,000
55%
1997
594,026,000
57%
1990
410,681,000
77%
1998
576,464,000
83%
1991
412,480,000
61%
1999
508,108,000
76%
1992
423,054,000
110%
2000
468,405,000
68%
1993
486,958,000
81%
2001
433,743,000
69%
1994
515,819,000
87%
2002
405,003,000
70%
1995
531,409,000
58%
2003
422,216,000
56%
2004
427,694,000
57%
Guy Carpenter
Loss Ratio
28
June 6-7, 2005
Crop Insurance
Overview of Primary Market in US
Susan Witcraft
Minneapolis