Adjusted Gross Revenue Insurance

1
Adjusted Gross Revenue Insurance

• By Charles Koines
• Risk Management Agency

2
OBJECTIVE

• Provide an insurance safety net for producers of
  agricultural commodities without individual
  insurance programs.

3
DEVELOPMENT GROUPS

• Data collection
• Grower Associations
• Farm Bureau
• State Departments of Agriculture
• USDA Agencies
• Reinsured company personnel
• State Extension Farm Management Specialists

4
2001 PILOT AREAS

• New England States (All Counties)
• New York (16 Counties)
• New Jersey (All Counties)
• Pennsylvania (6 Counties)
• Maryland (21 Counties)
• Delaware (All Counties)
• Virginia (26 Counties, 14 Cities)

5
METHODOLOGY

• Non-traditional approach
• Whole farm scope
• Schedule F tax information
• Base is five year average

6
APPROACH

• Insurance safety net
• All agricultural commodities are covered
• Cash is common measurement
• Tax forms and regulations apply
• Reinforces program creditability
• Alleviates compliance concerns

7
ELIGIBILITY

• Agriculture commodity producer
• Producing commodities in pilot counties
• Five years Schedule F tax form
• Calendar year filers and
• Fiscal Year Filers

8
ELIGIBILITY CONTINUED

• Not more than 50 of income from insurable crops
  and livestock (unless insurable crops
  insured)
• Not more than 35 from livestock and
• Not more than 50 commodities purchased for resale

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AGR TIMELINE
CALENDAR YEAR
SALES PERIOD
INSURANCE YEAR
CLAIMS
JULY 1
JANUARY 1
DECEMBER 31
January 31
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AGR TIMELINE
FISCAL YEAR
SALES PERIOD
INSURANCE YEAR
CLAIMS
First day of the seventh month after the end of
the Fiscal Year
January 31
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ELIGIBILITY CONTINUED

• SALES OF APPLES MORE THAN 50 OF AGR
• 500 Bu. APH X 50 X 6.00 X 30 Acres 45,000
• 100,000 AGR X 80 X 90 72,000 AGR Liability
• 72,000 - 45,000 27,000
• 72,000 X 50 36,000 Maximum Premium Reduction

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UNDERWRITING

• Application
• Five years Schedule F forms
• Annual Farm Report
• Historic yearly enterprise revenue
• Estimated enterprise revenue
• Beginning Inventory

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SIX PROTECTION AMOUNTS

• Producer selects one amount
• 65 Coverage Level / 75 Payment Rate
• 65 / 90
• 75 / 75
• 75 / 90
• 80 / 75
• 80 / 90

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HIGHER PROTECTION ELIGIBILITY

• 65 / 75 - Everyone Qualifies
• 65 / 90 - Must Meet Two The Crop Revenue
  Qualifier
• 1/Number Of Crops X .333
• 1/2X.333 16.7 1/3X.333 11.11/4X.3338.3
• 75 / 75 75 / 90 - Must Meet The Two Crop
  Revenue Qualifier
• 80 / 75 80 / 90 - Must Meet The Four Crop
  Revenue Qualifier 1/4X.333 8.3
  1/5 X .333 6.7 1/6X.333 5.5
  
• 1/7 X .333 4.8 1/8 X .333 4.2

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COVERAGE

• Loss of revenue by unavoidable cause occurring
  during the insurance period.

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ABANDONMENT

• Abandonment is not permitted.
• Your decision not to harvest due to low market
  prices will not be considered abandonment.

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RATING

• Similar to existing revenue products
• Probability of loss
• Price and yield correlation

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PRODUCER PREMIUM ELEMENTS

• Number of crops
• Type and Proportion of crops
• MPCI coordination
• Producer Subsidy
• 65 Coverage Level - 59
• 75 Coverage Level - 55
• 80 Coverage Level - 48

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LOSS DOCUMENTATION

• Notice of Damage or Loss
• Cause of loss
• Insured year farm tax form
• Inventories (beginning and ending)
• Accounts receivable (beginning and ending)

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AVERAGE AGR INCOME

• 1995
• 1996
• 1997
• 1998
• 1999
• Total
• Average AGR

• 90,500
• 99,550
• 92,000
• 119,600
• 130,360
• 532,010
• 106,402

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AVERAGE AGR EXPENSES

• 1995
• 1996
• 1997
• 1998
• 1999
• Total
• Average Expenses

• 63,500
• 74,660
• 83,500
• 83,900
• 100,370
• 405,930
• 81,186

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INDEXED AGR

• Compare 2 most recent years allowable income
  (98, 99) to average AGR
• If either year is greater than average AGR,
  calculate index
• Each years allowable income/preceding years
  allowable income factor (.xxx)
• Cap and Cup factor at 1.200
• Total all factors and divide by 4 factor (.xxx)
• Multiply factor (.xxx4) factor (x.xxx)
• Factor X average AGR indexed average AGR
• Adjust average expenses by same factor

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INDEXED AGR EXAMPLE

• 99,550 / 90,500 1.100 (repeat for each line)
• .924
• 1.300 (cap at 1.200)
• 1.090
• 4.314 / 4 1.079
• 1.079 4 1.355
• 1.355 X 106,402
• 144,175 Indexed Avg. AGR

• 95 90,500
• 96 99,550
• 97 92,000
• 98 119,600
• 99 130,360
• Tot. 532,010
• Avg. 106,402

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LOSS EXAMPLE

• Insured has elected the 75/75 coverage and has
  88,500 of income.
• 144,175 75 Coverage Level 108,131.
• 108, 131 - 88,500 19,631
• 19,631 X 75 Payment Rate 14,723
• 19,631 X 90 Payment Rate 17,668

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RESOURCES

• Internet
• Policy http//www.rma.usda.gov/pilots/2001pilot.h
  tml
• Premium calculator
• http//www.rma.usda.gov/tools/
  
• Charles Koines (518-885-6811)
• charles_koines_at_rm.fcic.usda.gov

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DISCLAIMER

• This presentation points out certain features of
  Crop Insurance and is not intended to be
  comprehensive. The information presented neither
  modifies nor replaces terms and conditions of the
  basic policy, the crop provisions, or the County
  Actuarial Documents. Contact a Crop Insurance
  Agent for further details.