Crop Insurance Today June 2018 - 18

Table 5 MPCI Insured Acres by Major Crop1

CROPS

2015

2016

2017

CHANGE

% CHANGE

Wheat
46,805 42,817 37,080 -5,737 -13.4%

Corn
78,371 82,145 78,858 -3,287 -4.0%

Sorghum
6,782 5,372 4,140 -1,232 -22.9%

Soybeans
74,519 73,260 79,832 6,572 9.0%

Upland Cotton
8,585 9,452 11,725 2,273 24.0%
Pasture, Range and Forage
54,655 51,790 74,931 23,142 44.7%

Total above crops 269,719 264,836 286,567 21,731 8.2%

Total all crops
295,953 290,107 311,445 21,338 7.4%
NASS Planted Acres (Field Crops) 318,975 319,238 319,147 -91 0.0%
Data as of May 18, 2018
Source: RMA Summary of Business, NASS Quick Stats

to the large payouts in 2011 through 2014. Gross
underwriting gains, the difference between premiums and indemnities, fell below the record
level set in 2016 but are still strong. The gross loss
ratio, defined as the ratio of indemnities to premiums, is the traditional metric used for comparing the performance of the program over time.
From an underwriting perspective, the breakeven point is a loss ratio of 1.00, with values below
1.00 indicating a year with underwriting gains
and values above 1.00 indicating a year with an
underwriting loss. On this basis, the program
had an excellent year in 2017 with a gross loss
ratio of 0.50, though this value is expected to increase as any remaining open claims are settled.
In comparison, the 2016 year, the best in the history of the program, had a loss ratio of 0.42, while
the four earlier years had loss ratios of 0.65, 0.91,
1.02, and 1.57.
Net underwriting gains differ from gross
underwriting gains in that any gains or losses

JUNE2018

on a gross basis are shared between FCIC and
the participating insurance companies as established under the terms of the Standard Reinsurance Agreement (SRA). After reinsurance,
more than half of the gross underwriting gains
in 2016 were ceded to FCIC. For 2017, one would
expect a similar outcome. One point that needs
to be kept in mind is that having three consecutive years with solid underwriting gains is not
a guarantee that future years will continue to be
profitable. For example, the seven-year period
from 2004 through 2010 also achieved excellent
underwriting results, but these were immediately
followed by four years with modest to severely
unprofitable results. It is important to recognize
that underwriting gains are only one component
of a company's pre-tax income. After accounting
for all revenues and expenses, company pretax
net income is estimated to have averaged slightly
more than 6 percent of retained premium for the
seven years under the current SRA.

The number of insured acres for the major
crops from 2015 through 2017 are shown in Table 5. Wheat, corn, and sorghum acres declined
in 2017, but were offset by increases in soybean
and cotton acreage. The overall increase in acres
insured was driven by the expansion of the Rainfall Insurance program under Pasture, Rangeland, and Forage. In comparison, NASS reports
that the total number of acres planted to principal field crops, excluding land used for cattle
grazing, were essentially unchanged for the year.
As was the case in 2016, Texas once again had
the largest premium and largest indemnities of
any state, with premium of $970.9 million and loss
payments of $734.7 million (Table 6), corresponding to a loss ratio of 76 percent. Hurricane Harvey
alone caused $36.6 million in crop damages in
Texas. North Dakota was second in both premium and indemnities, with an overall loss ratio of
61 percent. South Dakota came in third in terms
of indemnities, but had a loss ratio of only 52 percent. California, with excess moisture and heat,
was the fourth in total indemnities with a loss
ratio of 71 percent. Drought, hail, wildfires, and
excess moisture were the most significant causes
of loss in all four states. Among crops, corn led
with $1,260.9 million in indemnities, as compared
to $920 million in 2016. Soybeans, wheat, cotton,
and the Pasture, Rangeland, and Forage program
followed corn in total loss payments.
The map in Figure 15 shows the state loss
ratios and premium volumes for 2017. Colors
are used to identify states with similar loss ratios, and shading is used to identify states with
similar premium volumes. Four states, Montana, Utah, Vermont, and Rhode Island, had

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