Information on the Federal Crop Insurance Corporation's 1983 Standard Reinsurance Agreement

GAO was asked to review the 1983 Standard Reinsurance Agreement approved by the Board of Directors of the Federal Crop Insurance Corporation (FCIC), a government-owned corporation within the Department of Agriculture.

The reinsurance program was established in 1980. In an attempt to involve more private insurance companies and encourage them to write insurance on all crops nationwide, FCIC has made revisions to the amount of premiums allocated between FCIC and the companies for their portion of risk sharing. At specified times throughout the year, FCIC reimburses companies for the costs associated with operating and administering the program. The amounts paid are based on percentages of premiums collected and net losses incurred, rather than on the private companies' actual costs. GAO stated that FCIC does not require private companies to report the actual cost of providing their services, nor does it have audit procedures to determine whether the reimbursement billings that the private companies submit are valid. GAO was unable to determine from the financial statements available at FCIC whether the reinsured companies had sufficient reserves or assets to bear the risk undertaken.