CROP INSURANCE EXPERIENCE BY YEARS 1948-68, ALL PROGRAMS-Continued Federal crop insurance corporation fund-Subscription to capital stock Appropriation Act, 1970 Budget Estimate, 1971___. Decrease in appropriation___. $10, 000, 000 -10, 000, 000 The 1970 Department of Agriculture and Related Agencies Appropriation Act provided a specific appropriation of $10 million to enable the Secretary of the Treasury to subscribe to a like amount of capital stock of the Corporation. This appropriation was made to provide additional working capital for the Corporation. No additional subscription to capital stock is proposed for 1971. Mr. WHITTEN. We will be glad to have your general statement. GENERAL STATEMENT Mr. ASLAKSON. Mr. Little, my assistant, is not present due to illness. Mr. Chairman and gentlemen of the committee, thank you for the opportunity to discuss the programs and financial needs of the Corporation for the 1971 fiscal year. BUDGET REQUEST FOR 1971 To carry out our objectives in fiscal year 1971, we are requesting an appropriation of $12 million, with authority to pay $2,335,000 from premium income, making a total of $14,335,000. The funds requested in the 1971 budget are based on a continuation of the crop insurance program at approximately the 1970 level with no increase in funds. INSURANCE COVERAGE The 1971 budget will provide about $933 million of crop insurance protection for American farmers, for which they will pay $50.7 million in premium. This crop insurance protection will be available to farmers in 1,425 counties. During the period 1948 through 1969, the Federal Crop Insurance indemnities have amounted to $552.6 million for which premiums have amounted to $562.9 million, for a loss ratio of 0.98. Attached as "Exhibit I" is a loss ratio table by crop showing the annual and cumulative experience during this period. CHANGES IN THE 1971 BUDGET ESTIMATES For the third straight year there has been a major change in the estimated indemnities after the budget was submitted. The estimated 1969 indemnities of $47.3 million shown in the 1971 budget have moved up to $55.7 million since the budget was submitted; an increase of $8.4 million. This resulted from additional 1969 crop year losses on citrus, corn, cotton, and soybeans. The citrus losses are still very much in the estimate stage. They could be below or above the estimate when loss adjustments are completed. The current indemnity estimates for all crops would result in a loss ratio of 1.14 instead of the 0.97 estimated when the 1971 budget was prepared. Attached as "Exhibit II” is a revised table of the 1969 experience by commodities. There is also attached as "Exhibit III" a revised summary of changes in capital which reflects the impact of these increased indemnity estimates on the Corporation's capital for 1970 and 1971. This brings the table on page 185 of the explanatory notes up to date. As you can see the capital at the end of this year is estimated at $12.8 million. INSURANCE EXPERIENCE The Crop Insurance Corporation is facing its third consecutive year in which indemnities will exceed the premium earned. Losses paid by the Corporation during the last 3 years have been about 29 percent of the total indemnities paid during the 1948 through 1969 period. This loss trend has developed even though, with the exception of cotton, crop production has generally been well above the norm during this same period of time. A review of the program by present management indicates that to a significant degree this position developed because insurance offers have been increased and the rate of premium earned has decreased, in recent years, at a rate which statistical analysis indicates was in excess of what would be required to maintain sound financial operations. The cotton program illustrates the effect of this trend upon insurance operations when crop production falls short of the norm. During the last 4 years, the Corporation has paid $53.2 million in cotton losses while collecting only $20.4 million in premium. The Corporation in 1969 is experiencing its fourth consecutive year of severe cotton losses and presently anticipates paying $21.1 million in claims while collecting only $7.6 million in premium. Cotton losses in 1969 were caused principally by adverse weather conditions and insect damage in the major cotton-producing areas. These conditions, coupled with significant increases in coverage at reduced rates in recent years, have combined to produce the Corporation's adverse loss position in this commodity. In addition to cotton, the Corporation anticipates paying claims exceeding premium on citrus, grapes, potatoes, sugar beets, tobacco, and tomatoes, during the 1969 crop year. The Corporation also expects to pay significant losses on corn, soybeans, and wheat, although it is anticipated that premiums will exceed claims for these commodities. The Corporation's management has carefully reviewed and analyzed its financial position, and expects to use its resources during 1971 to complete the action necessary to strengthen the Corporation's insurance offers and administrative operations in order to effect the improvement required to insure a future sound financial position, while maintaining maximum service to farmers. Many changes have already been initiated by the new Board of Directors of the Corporation, strengthening the crop insurance program for 1970. The Corporation has under study additional areas where changes will be required, and it will take whatever course of action is necessary to accomplish needed improvements. CHANGES FOR 1970 CROP YEAR The Corporation has revised coverages, premium rates, and contract provisions on cotton for 1970 which it believes will provide for significant improvement in the loss position of that commodity. Additional studies for cotton are under way to determine what additional action may be necessary to provide for sound financial operations in future years while providing an insurance program which will meet the economic needs of cotton growers. In addition, the Corporation has made substantial revisions in its citrus program for the 1969 and 1970 crop years. Soybean rates were adjusted to provide for improved results in areas where experience was threatening to jeopardize the overall favorable experience for this crop. The potato insurance program has been discontinued as a result of continued adverse experience, administrative problems, and limited participation by eligible growers, beginning with the 1970 crop year. The 1970 actuarial changes are not confined to those just mentioned since development of a sound actuarial structure is a matter of continuous refinement ranging in scope from individual insureds to entire crop programs. The Corporation anticipates that during 1971 it will complete necessary actions for improved operations by revising insurance plans and operating procedures to place those commodities and areas with adverse insurance experience on a sound financial basis, keeping in mind always that the objective of the Corporation is to provide the farmer with the best crop insurance program possible in líne with his economic needs. PROPOSED LEGISLATION With the steps now under way by the Corporation to improve its financial position, the Federal crop insurance program has reached the stage where Federal assistance can be gradually reduced. The Corporation has proposed legislation to place the program on a selfsufficient basis over a period of time. This will permit crop insurance premiums to be adjusted to cover administrative costs if this can be done without seriously affecting the level of participation in the program. Thousands of farmers can look back on the last 3 years as proof that crop failure can and does recur unpredictably throughout the agricultural community. Although crop insurance has long served an effective and important role in providing financial reimbursement of the farmer's investment in years of crop loss, it is also serving an increasingly vital role as collateral support in meeting the farmer's credit needs in this period of tight money and high interest rates. This increasing interest in cooperation between the Corporation and banks is a logical development when you consider that over the last decade the average farmer's debt has almost tripled. As farmers need more borrowed capital, their financial risk usually increases and most of them recognize their insurance needs. Banks are finding that they need more security for the high credit requirements for their farm customers and that Federal crop insurance provides this security and reduces their collecting and refinancing problems if crop failure strikes. There is ample evidence that the need for the crop insurance program is increasing as it serves to provide substantial economic support for agricultural communities, not only in years of crop failure but also in good years when it serves to provide financial security necessary to support the farmer's credit needs. It is our opinion that the Corporation can successfully institute the changes necessary to improve its financial position and to initiate its proposed program changes. This can be done while still providing an adequate insurance program which will be offered within the economic means of its policyholders. We believe that the Crop Insurance Corporation can anticipate continued sound growth as farmers increasingly recognize the value of this kind of financial security in today's high cost of farm operations. This concludes my statement. We will be glad to answer any ques tions or furnish any additional information you may desire. Mr. WHITTEN. Thank you. We appreciate your statement. (The attached charts follow:) |