Announcement From the Office of FCIC Chairman of the Board Dr. Keith Collins

WASHINGTON, April 14, 2004 -- The Board of Directors (Board) of the Federal Crop Insurance Corporation (FCIC) voted on April 6, 2004, to permit reinstatement of the Livestock Risk Protection (LRP) Pilot Plans of Insurance for Fed and Feeder Cattle and the Livestock Gross Margin (LGM) Pilot Plan of Insurance for Swine under certain conditions. Sales of each of these products were suspended in recent months due to vulnerabilities in the programs. The Risk Management Agency (RMA) will implement certain modifications before reissuing each of the programs, which RMA anticipates being early fall.

The FCIC Board is committed to providing the maximum possible continuity of livestock price risk protection to producers upon implementation of changes necessary to ensure actuarial, underwriting, and program integrity of the LRP and LGM products.

The Board has requested that a review and analysis of each of these programs be conducted 1 year after they have returned to the marketplace. Typically, crop pilot programs are reviewed after 3 years, but the continual nature of the sales cycles for these livestock programs should provide sufficient data to permit a useful review after one more year of experience.

Livestock Risk Protection (LRP) for Fed and Feeder Cattle

The LRP Pilot Plans of Insurance for Fed and Feeder Cattle were suspended in recent months after vulnerabilities to the program were revealed by the announcement of the finding of Bovine Spongiform Encephalopathy (BSE) in the United States. The FCIC Board reviewed suggested changes submitted by the private product's owner and voted to withdraw reinsurance for all LRP Pilot Plans of Insurance (Fed Cattle, Feeder Cattle and Swine) and to permit their reinstatement once certain conditions are met. These conditions are as follows:

1. Sales must be allowed from the time rates are set and validated based on the current day's Chicago Mercantile Exchange (CME) prices, and ending on the following day at 9:00 AM central time;
2. Procedures must be included for suspension and resumption of sales in cases of catastrophic events or highly volatile futures market prices;
3. There must be an addition of a new daily limit of premium (set at the discretion of the Manager of the FCIC, but starting at $1 million for 2005);
4. Language must be provided for suspension of sales for any endorsement period that involves rating based on a futures contract that is up or down the limit allowed by the CME, as approved by RMA; and
5. Other revisions will be made to the policy as necessary to implement the changes previously described.

RMA will institute the modifications and issue new 2005 insurance year policies for sale to eligible producers as soon as possible. The earlier suspension of the LRP Pilot Plans of Insurance for Fed and Feeder cattle remains in effect for the 2004 insurance year and the LRP Pilot Plan of Insurance for Swine will continue sales through the end of the 2004 insurance year (until June 30) under the terms and conditions of the 2004 policy. The Board's withdrawal of reinsurance for all three LRP Pilot Plans of Insurance (Fed Cattle, Feeder Cattle, and Swine) and the conditions for reinstatement of reinsurance will apply to the 2005 and subsequent insurance year policies. This effectively disallows any new sales or carryover policies to continue for the 2005 insurance year under the terms and conditions of the 2004 policy. Livestock producers who bought LRP insurance for Fed or Feeder cattle prior to the earlier suspension will continue to have coverage for their 2004 insurance year policies.

Until further notice, for the 2005 insurance year, insurance providers who do not wish to sell or service these policies at their own risk and without any subsidy must notify all LRP policyholders of the cancellation of their policies by the cancellation date in accordance with the policy provisions.

In October 2003, the Board approved modifications to the LRP Pilot Plan of Insurance for Feeder Cattle that have not yet been implemented due to the suspension of the program. These modifications will be included when the revised LRP Pilot Plans of Insurance are released in accordance with the April 6, 2004, Board resolution.

Livestock Gross Margin (LGM) for Swine

The LGM Pilot Plan of Insurance for Swine was suspended for new insureds in December 2003 after it was discovered that vulnerabilities in the program exposed FCIC to excessive risk. The FCIC Board reviewed suggested changes submitted by the private product's owner and voted to withdraw reinsurance for the LGM Pilot Plan of Insurance and to permit its reinstatement once certain conditions are met. These conditions are as follows:

1. Changes approved by the Board on August 1, 2003 (Board Memorandum No. 709 Docket No. CI-LGM-03-01), must be implemented, except that sales must be allowed from the time rates are set and validated based on the current day's commodity market prices and ending on the following day at 9:00 AM central time;
2. Additional language must be added to the policy prohibiting insureds from having offsetting positions on boards of trade;
3. Additional language must be added to the policy to permit suspension of LGM sales due to an extraordinary event, as determined by the FCIC Manager; and
4. Other revisions will be made to the policy as necessary to implement the changes previously described.

Until further notice, for the 2005 insurance year, insurance providers who do not wish to sell or service these policies at their own risk and without any subsidy must notify all LGM policyholders of the cancellation of their policies by the cancellation date in accordance with the policy provisions.

RMA will institute the modifications and issue new 2005 insurance year policies for sale to eligible producers as soon as possible. The earlier suspension of the LGM Pilot Plan of Insurance for Swine remains in effect for the 2004 insurance year and the conditions for reinstatement of reinsurance will apply to the 2005 and subsequent insurance year policies.

For further information, please contact James Callan (202-720-8812) or Raegan Weber (202-720-6200).

Related items: LRP Docket: Withdrawing Reinsurance of the Livestock Risk Protection (LRP) Pilot Plan of Insurance Pending Revision (PDF file; 44kb) | LGM Docket: Withdrawing Reinsurance of the Livestock Gross Margin (LGM) Pilot Plan of Insurance Pending Revision (PDF file; 27kb)