Response to the Risk Management Agency’s Second Draft of the Standard Reinsurance Agreement and Appendices Issued on February 23, 2010

Submitted by National Crop Insurance Services, Inc. On April 9, 2010

National Crop Insurance Services, Inc. 8900 Indian Creek Parkway, Suite 600 Overland Park, KS 66210-1567

National Crop Insurance Services, Inc. April 9, 2010

Contents

Part Page

1. Overview……………………………………………………….. 3

2. Concerns with the Financial Provisions of the Second Draft.. 3

3. SRA Provisions………………………………………………… 26

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1. Overview

NCIS appreciates the ongoing efforts of USDA’s Risk Management Agency (RMA) to meet and discuss its second draft of the 2011 Standard Reinsurance Agreement (SRA) and the appendices. The industry continues to have serious problems with the second draft. With these comments, which include a new proposal for reinsurance terms of the SRA, and the negotiating meetings scheduled to take place soon, NCIS believes that a workable and mutually acceptable SRA and appendices can be developed.

On February 17, 2010, RMA officials presented the key features of the financial provisions of the second draft of the SRA at the crop insurance industry’s annual meeting. On February 23, 2010, RMA released the text of the second draft, including the texts of draft Appendices I-IV, and requested comments by March 22, 2010 (Manager’s Bulletin No. MGR-10-002). On March 19, 2010, RMA extended the comment period to April 9, 2010 (Manager’s Bulletin No. MGR- 10-002.1). These comments are being provided in response to the April 9 call for comments on April 9.

While NCIS values RMA’s efforts to respond to industry concerns with the first draft, there has been insufficient progress toward an acceptable SRA. These comments present the industry’s primary concerns with the second draft and again provide a proposal to address these issues. Some of these comments have been provided informally to RMA in recent weeks. The industry remains concerned with the insufficient data and analysis provided by RMA and whether RMA has appropriately addressed the many factors that will determine industry performance under the second draft SRA. Consequently, these comments include questions regarding RMA’s data, methods, and analyses that are either unknown to the industry or are unresolved. The next section addresses the financial provisions, while all other major issues are identified in Section 3 of this document, headed “SRA Provisions.” Included with these comments are red-lined edits to the draft SRA prepared by RMA and the four accompanying appendices. Those attachments contain all revisions to the contract documents which NCIS and its work groups propose.

2. Concerns with the Financial Provisions of the Draft SRA

This portion of the response presents the industry’s financial concerns with the second draft 2011 SRA and proposes alternatives. Key financial concerns continue to be the excessive funding reductions and program structural changes that will not achieve the intended objectives. The draft’s excessive, open-ended, and unnecessary administrative and informational requirements also have financial implications, and these concerns are addressed in the section on SRA Provisions.

A&O Provisions of the Second Draft SRA

Conceptual Problems with the Use of RMA Reference Prices

At present, RMA establishes the prices of all insurable commodities using recent crop prices, including information from commodity futures markets reflecting the market value of the

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commodities insured. These prices are then used to determine premium, and ultimately used to calculate A&O payments as a percentage of the premium. A&O payments are intended to cover the delivery costs of the program. Basing A&O payments as a percentage of premium is consistent with the long-standing business practices of the insurance industry.

RMA’s SRA proposal would establish A&O payments based on two categories: (1) reference crops: corn, soybeans, wheat, upland cotton, barley, rice, and grain sorghum, and (2) non- reference price commodities: essentially all other crops. This proposal decouples the linkage between the prices used to establish premium and the prices used to determine A&O payments. In RMA’s proposal, the reference price crops are segregated into a separate group for the purpose of computing A&O payments. Instead of using the current prices of the insurable commodities, which reflect the market value of these crops, RMA uses an historic average of season-average prices received by famers, as reported by the National Agricultural Statistics Service. These reference prices are decoupled from the current market value of these crops. The reference prices are an average of farm priced during the period 1999-2008 and would be fixed for the life of the SRA. As noted in Table 1, compared with current commodity prices, this approach results in an A&O reduction of approximately 30 to 40%:

Table 1. Field crop base and reference prices Crop 2010 CRC base 2013 reference price Reduction prices (Group 1) Corn $3.99 per bu. $2.57 per bu. 36% Soybeans $9.23 per bu. $6.43 per bu. 30% Upland cotton $0.72 per lb. $0.52 per lb. 28% Wheat $5.43 per bu. $3.92 per bu. 28% Barley $3.70 per bu. $2.93 per bu. 21% Rice $0.14 per lb. $0.083 per lb. 41% Sorghum $3.90 per bu. $2.43 per bu. 38%

In addition to segregating the principal field crops into a separate group, RMA’s proposal also separates the states into three groups, without explicit justification. Group 1 is Cornbelt states: Illinois, Indiana, Iowa, Minnesota, and Nebraska. Group 3 is defined as the “underserved/low participation” states, including Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut, New York, Pennsylvania, New Jersey, Maryland, Delaware, West Virginia, Nevada, Utah, Wyoming, Hawaii, and Alaska. Group 2 is all other states. The Group 1 category is simply the most profitable states in the Cornbelt. Group 3 “underserved/low participation” states, with the addition of Alaska, were defined in Sections 522 and 524 of the Federal Crop Insurance Act. By default, Group 2 is everything else and primarily represents the Plains and Western states and the southeast region of the United States. A&O payment and reinsurance provisions vary by state Group, as described below.

The rigidities and discriminatory effects by crop and state of the fixed reference price formula. Determining A&O payments using fixed reference prices has a number of conceptual problems and would have adverse impacts on the crop insurance program. Using an imputed premium (“adjusted net book premium”) to determine A&O payments is simply an artifice designed to cut

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A&O payments to a predetermined level—a budget target—and keep payments close to that level over time regardless of program changes.

There is no methodological basis for use of the 1999-2008 period. It does not reflect any long- term projections of market prices (e.g., projections of CBO, USDA, or FAPRI), and it reflects a recent, but arbitrary, period of history. By fixing the imputed premium for the purposes of calculating A&O payments, the reference price method ignores all the program and market factors that are likely to increase (or possibly decrease) future delivery costs in a dynamic and growing program.

RMA’s reference price procedure discriminates against the insurers of major field crops as defined by RMA, namely, corn, soybeans, wheat, cotton, grain sorghum, barley, and rice. This means that states that have a high proportion of the seven field crops will face much sharper A&O reductions than other states. Many of these states are also facing the sharpest underwriting gain reductions under the proposed SRA. Insurable crops outside the set of reference commodities receive no reduction in A&O payments. RMA does not explain its justification for its delineation of reference crops versus non-reference crops in its SRA proposal.

The discriminatory effect of RMA’s reference price procedure is detrimental to the underserved/low participation Group 3 states where the seven crops are important. RMA proposes to reduce this adverse effect compared with the first draft of the SRA by providing a 5% price increase for Group 2 and 3 states. In 2013 and beyond, the corn reference price is $2.57 per bushel in Group 1 and $2.70 in Groups 2 and 3. This price bump fails to address the problems introduced by the use of reference prices and introduces yet another discriminatory effect—different prices for the same crop in different states. USDA’s baseline season-average corn farm price averages $3.71 per bushel during 2011-2015, which means the cut in A&O for corn in Group 3 states is from $3.71 to $2.70 or a still very large 27%. Compared with policy base prices, which are futures prices and normally exceed farm prices, the cuts would be even larger. Consider some of the Group 3 states: corn and soybeans are the number 1 and 2 crops in production value in Delaware; corn and soybeans are the ranked number 2 and 3 in Maryland; wheat and feed grains are ranked number 3 and 5 in New York and number 2 and 4 in Pennsylvania. The proposed A&O cuts would reduce the incentives for companies to participate in the underserved states, in conflict with RMA’s stated objectives for these negotiations.

The reference price procedure also discriminates against states in Group 2 which predominantly grow the reference crops and have poor actuarial experience. In these states, A&O is critical to the insurance provider. Since poor actuarial performance is a strong disincentive to write insurance in a state, A&O payments become even more important in ensuring good service in low return states. In effect, RMA is compounding the disincentives for company participation by cutting A&O in these Group 2 states. Oklahoma and Texas are good examples of where the discriminatory effect would be felt, as both states have had frequent loss years since 2000.

The discriminatory nature of the reference price procedure might also affect the incentives in states which have a mix of reference price commodities and non-reference price commodities, such as the Pacific Northwest. Over time, the fixed reference prices will push sales incentives toward the non-reference price crops.

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Disincentive effects. A fundamental principle is that as the value of an asset increases, the insurer should have an increased incentive to market insurance to cover that increased potential liability. RMA’s reference price procedure decouples the A&O payments made to both AIPs and agents from the insurance prices established by RMA for the reference crops. The reference price procedure also presupposes that the relationship or correlation among the set of reference crops will be the same for the duration of the SRA. If relative prices change, that is, certain crops from the set of reference prices rise in value relative to other reference crops, crop insurance agents will have a weaker incentive to market crop insurance products to the higher value commodities, compared with the current A&O payment system. For example, if prices and acreage go down for one crop and up for another, the program incentives should signal that more AIP and agent resources should go to expanding insurance for the crop with the rising prices and acreage. However, only the acreage increase would signal such an increased effort, as the fixed reference price would blunt the market price signal.

“Other things equal.” Another conceptual difficulty with the reference price procedure is that it would be implemented regardless of the changes taking place in other factors that determine A&O. This procedure is proposed, and its impacts assessed, by RMA as a change with “everything else being equal.” However, everything else will not be equal, and that could lead to A&O reductions well beyond the cuts envisioned by RMA. A&O payments per policy under the current SRA are determined as:

A&O = (A&O rate)(Premium rate)(Base price)(Acres)(APH)(Coverage level)

RMA is substituting the reference price for base price in the formula in order to eliminate the effect of price changes on A&O. However, other factors are also affected by price changes. For example, a decrease in price volatility would reduce the premium rate and the A&O for revenue plans, compounding the RMA proposed cut. Similarly, an increase in volatility would increase premium rate but would also increase expected loss adjustment expenses. Higher commodity prices also raise E&O insurance expenses for agents. Shifts to enterprise units, continued biotech yield endorsements, or premium changes resulting from RMA’s premium rate review are further examples of changes that are and likely will continue to affect A&O payments. A major concern is that the many factors affecting A&O may work against the companies and agents over the life of the proposed SRA, and the reference price proposal ignores these expected effects.

Specific examples of A&O payments for a 2006 revenue policy, compared with the same policy in 2010 using reference prices, show that reductions in commodity prices and price volatility over the past two years would reduce 2010 A&O payments to near the 2006 level. With the soft cap in place on agent commissions, the examples show agent commissions in 2010 would be below the 2006 level.

The estimated effect on total A&O payments since 2008 of changes in participating acreage, prices, price volatility, 2008 Farm Bill provisions and RMA’s reference price proposal are illustrated in Table 2. A&O payments in 2008 are estimated at $2.019 billion. With the 2008 Farm Bill changes and lower prices and acreage, A&O payments declined to an estimated $1.604 billion in 2009. Using the 2009 premium, and adjusting it for commodity price and premium

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rate changes (major crops only) due to lower price volatility in 2010, A&O payments are estimated at $1.363 billion in 2010, 32% below 2008. Thus, even before any SRA changes, A&O payments are down considerably due to changes in various A&O determinants.

If RMA’s fixed reference price proposal, fully phased in, applied to 2010, A&O payments would drop to $1.034 billion, 49% below the 2008 level and near the 2006 level of A&O payments.

Table 2. Estimated A&O payment changes from 2008 through 2010 A&O Estimated percent Crop Adjusted A&O of year Proposal Premium Premium Payments Premium 2008 Pre-Farm Bill 9,851,240,237 9,851,240,237 2,019,168,032 20.5% 2009 1 - Pre-Farm Bill 8,946,172,023 8,946,172,023 1,831,785,495 20.5% 2009 2 - Post-Farm Bill 8,946,172,023 8,946,172,023 1,604,366,530 17.9% 2009 3 - RMA December draft 8,946,172,023 6,101,974,669 1,097,239,045 12.3% 2009 4 - RMA Feb draft: 2011 Reference Prices 8,946,172,023 6,794,361,377 1,217,857,149 13.6% 2009 5 - RMA Feb draft: 2012 Reference Prices 8,946,172,023 6,532,152,687 1,171,520,562 13.1% 2009 6 - RMA Feb draft: 2013 Reference Prices 8,946,172,023 6,281,667,957 1,127,398,751 12.6% 2010 1 - Pre-Farm Bill 7,563,224,087 7,563,224,087 1,552,270,061 20.5% 2010 2 - Post-Farm Bill 7,563,224,087 7,563,224,087 1,362,827,975 18.0% 2010 3 - RMA December draft 7,563,224,087 5,558,317,812 1,005,945,625 13.3% 2010 4 - RMA Feb draft: 2011 Reference Prices 7,563,224,087 6,184,433,366 1,115,417,930 14.7% 2010 5 - RMA Feb draft: 2012 Reference Prices 7,563,224,087 5,949,499,464 1,073,642,779 14.2% 2010 6 - RMA Feb draft: 2013 Reference Prices 7,563,224,087 5,725,631,339 1,033,965,735 13.7%

Table 3 provides state detail on the estimated effects of the 2013 reference prices on A&O payments. The estimates show the effect on A&O payments of the 2013 reference prices if they were applied to 2009 and the 2009 book of business adjusted for 2010 commodity prices and premium rates. While other factors will affect future A&O payments as well, this estimation method isolates the effects of the use of reference prices. The right hand column shows the percentage difference in actual 2009 payments and estimated payments in 2010 under the 2013 reference prices. Nine states face reductions of over 40%; the Group 1 states are particularly hard hit; and several Group 3 underserved states, such as Delaware, Maryland and Pennsylvania face reductions of over 30%.

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Table 3. Effect of 2013 Reference Prices on 2009 and 2010 A&O Payments

2009 A&O: 2010 A&O: RMA Feb RMA Feb Change Change draft: 2013 draft: 2013 from 2010 from 2009 2009 A&O: Reference 2010 A&O: Reference post farm post Farm State Post-Farm Bill Prices Change Post-Farm Bill Prices bill Bill AK 5,998 5,407 -9.9% 6,804 5,927 -12.9% -1.2% AL 9,675,665 9,325,156 -3.6% 9,314,537 9,143,973 -1.8% -5.5% AR 14,958,996 10,268,892 -31.4% 15,665,124 10,971,561 -30.0% -26.7% AZ 1,951,943 1,584,151 -18.8% 1,831,473 1,593,769 -13.0% -18.3% CA 43,325,545 41,031,161 -5.3% 39,690,343 38,543,894 -2.9% -11.0% CO 39,183,700 23,693,592 -39.5% 30,272,002 23,443,715 -22.6% -40.2% CT 961,411 949,802 -1.2% 1,072,971 1,063,544 -0.9% 10.6% DE 2,265,983 1,650,630 -27.2% 1,937,586 1,452,039 -25.1% -35.9% FL 20,224,654 20,006,354 -1.1% 20,203,808 19,995,105 -1.0% -1.1% GA 21,368,293 18,843,692 -11.8% 21,673,344 18,818,333 -13.2% -11.9% HI 283,692 283,692 0.0% 259,362 259,362 0.0% -8.6% IA 127,350,688 85,066,033 -33.2% 105,039,910 70,182,065 -33.2% -44.9% ID 16,209,363 11,228,933 -30.7% 11,155,752 9,917,890 -11.1% -38.8% IL 111,867,086 74,097,140 -33.8% 86,699,498 58,138,031 -32.9% -48.0% IN 60,407,236 40,866,709 -32.3% 49,211,165 33,388,599 -32.2% -44.7% KS 135,337,574 80,435,805 -40.6% 102,772,032 74,413,231 -27.6% -45.0% KY 18,072,875 13,424,966 -25.7% 15,544,391 11,958,808 -23.1% -33.8% LA 13,556,010 9,276,812 -31.6% 12,584,634 9,004,948 -28.4% -33.6% MA 730,019 718,728 -1.5% 753,225 744,037 -1.2% 1.9% MD 5,858,059 4,235,795 -27.7% 5,057,690 3,789,023 -25.1% -35.3% ME 1,420,350 1,408,828 -0.8% 1,452,750 1,445,315 -0.5% 1.8% MI 25,846,040 19,290,659 -25.4% 23,299,458 18,039,690 -22.6% -30.2% MN 112,850,459 78,638,031 -30.3% 101,129,099 71,616,793 -29.2% -36.5% MO 47,809,787 33,754,962 -29.4% 44,125,902 31,624,529 -28.3% -33.9% MS 17,077,078 12,287,933 -28.0% 16,233,664 11,604,908 -28.5% -32.0% MT 39,301,261 23,255,242 -40.8% 27,814,335 22,999,953 -17.3% -41.5% NC 30,788,263 25,599,509 -16.9% 29,102,910 25,018,026 -14.0% -18.7% ND 139,371,552 106,214,260 -23.8% 128,530,663 102,710,816 -20.1% -26.3% NE 106,587,356 69,391,195 -34.9% 88,244,601 60,036,936 -32.0% -43.7% NH 58,840 54,126 -8.0% 63,025 58,904 -6.5% 0.1% NJ 942,061 774,490 -17.8% 837,660 708,824 -15.4% -24.8% NM 3,823,799 2,434,233 -36.3% 2,878,639 2,366,557 -17.8% -38.1% NV 494,827 335,539 -32.2% 444,763 401,717 -9.7% -18.8% NY 5,158,720 4,570,844 -11.4% 4,827,799 4,378,076 -9.3% -15.1% OH 44,776,105 31,885,725 -28.8% 38,727,549 28,069,098 -27.5% -37.3% OK 35,463,358 18,797,684 -47.0% 23,665,737 17,993,261 -24.0% -49.3% OR 7,774,493 4,559,612 -41.4% 5,016,925 4,174,995 -16.8% -46.3% PA 9,136,704 6,880,769 -24.7% 7,892,908 6,107,660 -22.6% -33.2% RI 15,027 14,563 -3.1% 14,900 14,480 -2.8% -3.6% SC 10,009,786 9,177,945 -8.3% 9,529,116 9,067,224 -4.8% -9.4% SD 104,701,314 71,218,106 -32.0% 90,075,264 65,984,242 -26.7% -37.0% TN 14,412,925 11,110,393 -22.9% 13,472,767 10,484,769 -22.2% -27.3% TX 128,502,309 95,110,211 -26.0% 112,322,489 92,604,385 -17.6% -27.9% UT 868,008 531,582 -38.8% 635,165 532,185 -16.2% -38.7% VA 9,386,655 7,113,287 -24.2% 9,038,927 7,073,786 -21.7% -24.6% VT 328,927 303,689 -7.7% 339,509 317,882 -6.4% -3.4% WA 22,602,137 15,807,731 -30.1% 16,513,339 14,872,220 -9.9% -34.2% WI 37,336,417 26,722,767 -28.4% 32,261,570 23,647,755 -26.7% -36.7% WV 442,163 343,124 -22.4% 393,773 312,688 -20.6% -29.3% WY 3,485,019 2,818,262 -19.1% 3,197,118 2,870,207 -10.2% -17.6% Total 1,604,366,530 1,127,398,751 -29.7% 1,362,827,975 1,033,965,735 -24.1% -35.6%

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The results of Table 3 are depicted graphically in Figure 1. In Figure 1, the overall effect, represented by the blue bar, measures the percentage change from actual 2009 A&O to estimated 2010 A&O imposing 2013 reference prices. The overall effect is decomposed into two components: (1) the green bars which are the changes due to the 2013 reference prices; and (2) the red bars which are the changes due to changes in commodity prices, base rates, and price volatility factors from 2009 to 2010. As one would expect, the green bars are uniformly below the horizontal axis and contribute substantially to the overall reduction in A&O payments. Perhaps, more striking and more important is the effect of base rates, commodity prices, and price volatility factors that contribute to the overall reduction in A&O payments illustrated by the red bars. Although the red bars are not uniformly below the horizontal axis, the vast majority of the states realize a reduction in A&O simply due to the self-correcting nature of the market process. It is not evident that RMA in its deliberations with industry has recognized that A&O payments have decreased substantially due to this self correction. This point is further reinforced in a later section of this response (see discussion of Figure 6).

Figure 1: Percentage Change in A&O Payments from 2009 to 2010: Using 2013 RMA's Reference Prices and Accounting for Change in Commodity Prices, Base Rates and Price Volatility Factors Tot al Percentage Change Effect of Price, Base Rate, Price Volatility Change Effect of 2013 Reference Prices 20.00%

10.00%

0.00%

‐10.00%

‐20.00%

‐30.00%

‐40.00%

‐50.00%

‐60.00%

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Practical Problems with the RMA A&O Proposal

RMA’s stated rationale for using a fixed reference price to establish an adjusted premium to compute A&O payments is that the number of policies has declined in recent years and the program was well delivered in 2006. Thus, it concludes that the level of A&O payments for major crops in 2006 should be adequate A&O compensation for future years. RMA makes no mention of the expansion in the program that has taken place since 2006 or a number of cost factors for the companies that are increasing.

Using 2006 as a base. A primary deficiency of trying to peg A&O payments to 2006 and cap them is that 2006 is not an ideal reference year to judge the appropriateness of A&O payments for the future. A&O payments in 2006 did not cover actual costs, even then. A&O delivery expenses exceeded A&O payments by 4.3% of premium, as reported by accounting firm Grant Thornton. Moreover, other things equal, using fixed reference prices caps A&O payments for the principal field crops during 2011-2015, ensuring a rigid formula which will ignore the many factors likely to push up delivery costs in the future.

Cost factors beyond the policy count. The number of policies sold is not an accurate reflection of company and agent workload and is thus a flawed principle on which to base A&O payments. Delivery expenses in recent years have not been related to the number of policies sold. The cost of delivering the program is related to a number of other interacting factors, including but not limited to:

o complexity and diversity of policies sold, which depends on liability; acres enrolled; coverage levels; shifts in crops, plans of insurance, etc.; and new products introduced and marketed, including new training needs; o frequency of indemnities which affects loss adjustment and claims processing; o service demands by producers, which reflects demands for information related to risk management options and how the options work; o required IT investments, which must parallel RMA’s investments and requirements; o administrative requirements imposed by the SRA, including information and data reporting which has been escalating and would continue to do so under the new SRA; and o general inflation, which will increase the costs of all inputs including labor.

Key cost factors to continue rising. Figure 2 illustrates some of the above factors that will likely affect delivery expenses during 2011-2015 and how they have changed since 2006. First, actual expenses, excluding agent commissions, have increased by over 9% per year since 2006. Second, acres in the program continue to grow. Insured acres declined slightly in 2009 reflecting a decline in the total acreage planted to principal crops and the weakening farm economy. However, total program acreage is expected to continue rising as new products are introduced, premium rates continue to decline, and food and energy demand for farm products continues to rise. Third, real liability (deflated by the overall index of crop prices received by farmers) continues to rise. Fourth, policies indemnified surged in 2008, reflecting price volatility and high use of revenue policies. Revenue policies are expected to continue to increase as a share of

National Crop Insurance Services, Inc. 10 April 9, 2010 liability, and commodity prices are likely to continue to be highly volatile, thus the share of policies indemnified in the future is likely to exceed the historical rate. Fifth, coverage levels continue to increase. In 2009, the liability share of APH, CRC and RA policies with coverage levels of 75% or more stood at 48%. Thus, there remains opportunity to continue increasing coverage levels, and with appropriate incentives, agents are likely to continue to work to improve coverage levels. In addition, higher coverage levels would lead to higher loss adjustment expenses.

Fig. 2. Indicators of Delivery Expenses Since 2006 2006=100 160.0 Actual A&O expenses, less 140.0 commissions

120.0 Liability, Deflated by Index of farm 100.0 prices rec.

80.0 Acres Enrolled

60.0

40.0 % Policies Indemnified 20.0

0.0 % of APH, CRC and RA with Coverage 2006 2007 2008 2009 =>75%

Unlike the number of policies sold, these cost factors are trending up; they are not stable or declining. The linear trends in the above factors since 2000 and 2006 are illustrated in Figures 3 and 4. It is clear that the U.S. crop insurance program did not come to a standstill in 2006 and will continue to expand, with associated increases in delivery costs, provided the marketing incentives are adequate.

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Fig. 3. Trends in Indicators of Delivery Expenses

2006=100 Since 2000

Acres 190 % of APH, CRC and 170 RA =>75% % Policies 150 Indemnified 130 Deflated Liability

110 Linear (Acres)

90 Linear (% of APH, CRC and RA =>75%) 70 Linear (% Policies Indemnified) 50 Linear (Deflated Liability) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Fig. 4. Trends in Indicators of Delivery Expenses

2006=100 Since 2006

200 Deflated Liability 180 % Policies 160 Indemnified

140 Acres 120 % of APH, CRC and 100 RA =>75%

80 Linear (Deflated 60 Liability) 40 Linear (% Policies Indemnified) 20 Linear (Acres) 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Linear (% of APH, CRC and RA =>75%)

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New data and information requirements. Another important source of rising expenses is the information requirements that will be required under the 2011 SRA. While the effects of all the new requirements have not been estimated, NCIS employed BKD LLP to conduct a survey of AIPs to estimate the incremental (added) costs to AIPs solely due to proposed changes in reporting requirements under the 2011 draft SRA and solely related to COMBO/ITM, CLUs and CIMS. Total incremental costs due to all reporting requirements were not estimated. The incremental costs of the selected activities during 2005-2012 were estimated at $150 million, with the vast majority of the costs expected to be incurred after 2009.

Failure to adequately address inflation. A&O should reflect not only the projected cost increases resulting from added work related to program growth and changes from new SRA requirements, but from general inflation as well. In the industry meeting with RMA on February 17, 2010, RMA indicated that it had considered adjusting A&O for inflation but rejected the idea. If A&O payments continue to be based on actual gross premium, then to the extent that inflation is partly reflected in commodity prices over long periods of time, A&O payments would reflect at least some impacts of inflation. However, by using a fixed reference price, RMA has broken any link between general cost increases in the macroeconomy and A&O payments. Unfortunately, this omission is significant for crop insurance companies. Crop insurance companies are businesses which must meet payrolls and pay benefits including rising healthcare costs. Travel expenses, also rising, are an important component of crop insurance companies’ annual expenditures.

Table 4 shows the growth in projected inflation as measured by the deflator used to deflate output in the 2011 President’s budget. Between 2006 and 2015, the expected end of the 2011 SRA, inflation alone would increase 2006 delivery expenses by 18.3%. RMA’s proposed nationwide increase of 20% in A&O above 2006 levels is thus largely eaten up by inflation to say nothing of increases in program-related cost factors.

Table 4. Total composite output deflator from the President’s 2011 budget

Year 2006=1

2006 1 2007 1.027231 2008 1.064986 2009 1.066049 2010 1.08372 2011 1.09888 2012 1.11771 2013 1.138374 2014 1.160294 2015 1.182696

New product introductions. Delivery costs during the 2011-2015 period will also be related to the number of new insurance products that are introduced. These products will increase training needs and add to program complexity and marketing costs. Between 2000 and 2009, there have been 37 introductions of new crop or insurance plans (Figure 5). Looking to the future, there is

National Crop Insurance Services, Inc. 13 April 9, 2010 every reason to expected many more introductions. The number of new products will not stagnate between 2011 and 2015, as does RMA’s proposed level of A&O payments. For example, the 2008 Farm Bill mandates many new products be considered. Energy markets related to biofuels and climate change will increase the demand for new products. RMA is developing a family of new revenue products for crops that do not have central, price-discovery markets. The early success of vegetation and rainfall products for pasture, range and forage is likely to spawn their use for other crops. In addition, the change in the 508(h) process introduced by the 2008 Farm Bill is increasing the number of private sector proposals for new pilot programs. Figure 5, which shows the number of crop/plan introductions by year, makes it clear that new product introductions and their associated delivery costs are going to keep increasing.

Fig. 5. New Crop Insurance Products Introduced Since 2000, by Year # New Products 40

35

30 Each color corresponds to the products 25 introduced in the first year the color is used 20

15

10

5

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

The inadequacy of the reference price proposal to cover expected expenses. As an example of the discriminatory effects of RMA’s A&O proposal and its inadequate payments, consider the estimated A&O payments under the second draft SRA proposal for 2013. As reported in Table 3, the 2013 payments are projected two ways: (1) using the 2013 reference prices applied to the 2009 book of business and (2) using the 2013 reference prices applied to the 2009 book of business, adjusted for 2010 commodity price and premium rate changes (major crops only). Figure 6 shows how these 2013 projected payments compare with 2006 A&O payments and expenses.

The second draft SRA suggests projected A&O payments using 2013 reference prices ($1.127 bil.) would be 16% above actual payments in 2006 ($975 mil.), if the 2009 book is used to project to 2013. However, if premium rates and prices reflect 2010, then the 2013 A&O payments ($1.034 bil.) would be only 6% above 2006 A&O payments. Neither estimate reaches

National Crop Insurance Services, Inc. 14 April 9, 2010 the insufficient 20% increase that RMA has been targeting. Moreover, the 2013 payments under the second draft would be 4% to 12% below 2006 actual expenses ($1.177 bil., estimated using the A&O shortfall of 4.3% of premium as reported by Grant Thornton). The 2013 payments under the second draft would be 12% to 19% below the 2006 estimated actual expenses adjusted for inflation ($1.276 bil.) between 2006 and 2013.

While insufficient for the nation as a whole, the A&O payment situation is even worse for the Group 1 states (Figure 7). The 2013 projected payments using 2010 prices and rates are 8% below the 2006 actual payments. They are 24% below estimated actual delivery expenses for 2006 (assumes the Grant Thornton A&O shortfall of 4.3% of premium for 2006 applies to the Group 1 states). A&O payments in 2013 are 33% below the 2006 estimated actual expenses adjusted for inflation between 2006 and 2013. Adding in other cost factors related to program changes would result in an even larger shortfall in A&O payments in 2013 for Group 1 states compared with expenses.

Fig. 6. Projected 2013 A&O Payments Compared with 2006 A&O and Expenses Mil. $ all crops 1400

1300 1,276

1200 1,177 1,127 1100 1,057 1,034 1000 975

900

800 2006 A&O 2006 A&O 2006 actual 2006 actual 2013 A&O 2013 A&O pymts pymts adj for expenses expenses adj payments payments inflation to (2006 A&O for inflation under SRA #2 under SRA #2 2013 pymts plus to 2013 (using est (using est 4.3% 2009 book of 2010 prices & shortfall) business) rates)

National Crop Insurance Services, Inc. 15 April 9, 2010

Fig. 7. Group 1 States: Projected 2013 A&O Payments Compared with 2006 A&O and Expenses Mil. $ all crops 500 442 388 400 348 320 294 300

200

100

0 2006 A&O 2006 actual 2006 actual 2013 A&O 2013 A&O payments expenses (2006 expenses payments under payments under A&O payments adjusted for SRA #2 (using SRA #2 (using plus 4.3% inflation to est 2009 book of est 2010 prices shortfall) 2013 business) & rates)

Conclusion

In summary, RMA has introduced a proposal that has serious drawbacks by causing disparate changes across crops and regions and is highly inconsistent with the incentive system embodied in standard practices in the insurance industry. RMA has not put forth solid analytical arguments in favor of its proposal and has not evaluated the impacts in light of variable program parameters over the expected life of the SRA. The reference price proposal needs to be eliminated as the SRA renegotiation goes forward. If the intent of RMA is simply to reduce A&O payments to the industry, then certainly other alternatives are available that would preserve insurance principles and provide a closer relationship with expected expenses. The RMA proposal is rife with unintended consequences, regardless of the level of reductions imposed by the reference price mechanism. Moreover, the proposal is not in accordance with the Federal Crop Insurance Act as amended by the 2008 Farm bill. This point has been developed by legal counsel at Fulbright & Jaworski and is not being repeated here. It is hoped that RMA can redesign its A&O proposal to make it more incentive compatible with the business of insurance and better serve the American farmer and taxpayer.

Recommendation to RMA

NCIS recommends that the reference price structure for determining A&O payments be eliminated. NCIS maintains that RMA’s A&O proposal is not consistent with the Federal Crop Insurance Act as amended by the 2008 Farm Bill and is subject to a successful legal challenge.

National Crop Insurance Services, Inc. 16 April 9, 2010

Reinsurance Provisions of the Second Draft SRA

The second draft of the SRA issued by RMA is an improvement over the first draft from the industry’s perspective but remains unacceptable in several key areas.

Commercial Fund provisions

The second draft merges the six existing Commercial and Developmental Funds and sub-funds into a single Commercial Fund in each state. Table 5 shows the gain/loss provisions by state group (G) for the Revenue Commercial Fund under the current SRA and for the new Commercial Fund under the two SRA draft proposals and under the industry’s proposals made in response to the first draft SRA.

The second draft is similar to the first in that underwriting gain/loss provisions vary across states. The number of state groups with distinct gain/loss provisions for the Commercial Fund is reduced from four groups in the first draft to two groups in the second draft, consistent with the industry’ s recommendation. The first draft’s increase in the FCIC share of the potential losses (loss ratios above 100%) has generally been reduced in the second draft. Expressed in different terms, the share of the potential losses retained by the companies has generally increased. The FCIC share of the potential gains (loss ratios below 100%) in the second draft has generally been reduced as compared with the first draft. While the share of the potential gains retained by the companies has generally been increased, the share for the Group 1 states remains far below the levels in the current SRA. Under the current SRA’s Revenue Commercial Fund, companies retain 94% of the potential gain in the 65%-100% loss ratio layer. The first draft reduced their share in the Group 1 states to 65% and the second draft sets the share at 75%. The 75% share remains unacceptably low, particularly when combined with the increase in the share of losses to 65% proposed for the 100%-160% loss ratio layer.

Table 5. Current and Proposed SRA Gain/Loss Provisions for the Commercial Fund Retained Current SRA Draft #1 SRA Draft #2 Industry Industry Loss SRA (10% NBQS) (7.5% NBQS) Option A Option B Ratio (5% (0% NBQS) (10% NBQS) (%) NBQS) G 1 G 2 G 3 G 4 G 1 G 2/3 G 1 G 2 G 1 G 2 Gain Layers 65-100 94 65 75 85 95 75 95 80 96 90 100 50-65 70 20 20 30 30 40 40 30 70 30 80 0-50 11 5 5 5 5 5 5 5 5 5 5 Loss Layers 100-160 57 50 50 50 40 65 45 75 57 75 57 160-220 43 20 20 20 20 45 20 50 30 50 30 220-500 17 5 5 5 5 10 5 12 5 12 5

National Crop Insurance Services, Inc. 17 April 9, 2010

Residual Fund provisions

The second draft SRA modifies the Residual Fund, which was proposed in the first draft as a replacement of the Assigned Risk Fund. Under the second draft, the proposed Residual Fund is a nationwide fund for each company. The required retention of premium and ultimate net losses has been reduced from 100% in the first draft to 50% in the second draft, but is still well above the 15%-25% level in the current Assigned Risk Fund. This creates a concern that the increase in retained premium would increase each company’s premium-to-surplus ratio, possibly requiring company action to avoid breaching regulatory limits. From a financial perspective, an NCIS analysis of 1998-2008 indicates that company underwriting gains would have been reduced by a cumulative $11 million under the proposed Residual Fund as compared with the current Assigned Risk Fund. On an annualized basis, using the 2009 book of business, the reduction would be roughly $3 million per year. Given the negligible impact on underwriting gains and the implications of increased retained premium, the disadvantages of the proposed Residual Fund outweigh the benefits. The original rationale for the Residual Fund was to share the costs of the involuntary market business more equitably among companies; however, the method RMA chose to address that issue was problematic. Under the second draft, the Residual fund no longer achieves RMA’s intended objective and does not appear to serve any useful purpose. In addition, the conversion from individual state stop-loss to a national stop-loss treaty is likely to complicate the efforts of companies to obtain reinsurance. Given the other challenges to companies and reinsurers arising from changes to the SRA, the introduction of the proposed Residual Fund is an unnecessary distraction.

Net Book Quota Share (NBQS) provisions

The current SRA has a NBQS of 5%. The first draft SRA increased the NBQS from 5% to 10%, with vague language referring to possibly returning part or all of the 5 percentage point increase to the companies. The second draft SRA reduces the NBQS to 7.5%, and includes a formula for returning up to 2.5 percentage points of the NBQS in years of underwriting gains. The distribution would go to Group 3 states, not to exceed the A&O paid in the state.

The NBQS concept was introduced in the past as a quick and simple way to transfer underwriting gains from the companies to the FCIC to generate a reduction in program costs without having to deal with the complexity of changing the gain/loss provisions. Because the 2011 SRA will change the gain/loss provisions, the NBQS provision could now be withdrawn. The elimination of the 5% NBQS provision could be accompanied by revisions to the gain/loss provisions that achieve the same savings for FCIC that would be achieved by the 5% NBQS. As it stands, the formula for redistributing the 2.5 percentage points is inadequate. NCIS analysis shows that had the formula been in place during 1998-2008, only 60% of the 2.5 percentage points in NBQS paid to FCIC would have been returned to the companies. At the very least, the A&O limitation on payments to Group 3 states should be doubled to ensure this provision is an incentive to service Group 3 states rather than a disguised attempt to reduce program funding.

National Crop Insurance Services, Inc. 18 April 9, 2010

Impact of reinsurance provisions on underwriting gains

Analysis of historical data indicates that had the second draft reinsurance provisions been in effect in each reinsurance year during 1998-2008, company underwriting gains would have been reduced by $806 million, a 12.5% decline (Table 6). This reduction is about $500 million more than the reductions proposed by NCIS in its two options presented to RMA in response to its first draft of the SRA. (These reductions are shown as NCIS Options A and B in Table 6; NCIS’ recommendation in response to RMA’s second draft of the SRA is presented at the end of this section.) The second draft cuts historical underwriting gains as a share of retained premium from 18.1% to 14.6%–3.5 percentage points—which remains unacceptably large to the industry. Moreover, the reduction in the rate of return on retained premium is even more excessive in the Group 1 states. Over 1998-2008, the second draft proposal would have reduced underwriting gains for the Group 1 states as a share of retained premium by 7.2 percentage points, corresponding to a cut of 27% in dollars of underwriting gains. These reductions are on top of the proposed reductions in A&O payments and the significant delays in A&O and underwriting gain payments imposed by the 2008 Farm Bill, which will diminish cash flows, impose serious risks on the companies, and substantially increase their financing costs.

Table 6. Effects of SRA proposals on industry underwriting gains, 1998-2008 Underwriting Retained Return on UG change gain (UG) premium* retained from current premium* SRA Bil. $ Bil. $ Bil. $ Current SRA 6.476 35.722 18.10% Group 1 4.002 Group 2 2.464 SRA Draft #1 4.831 43.812 11.00% -1.645 Group 1 2.356 -1.646 Groups 2-4 2.476 0.012 SRA Draft #2 5.670 38.815 14.60% -0.806 Group 1 2.934 -1.068 Groups 2-3 2.736 0.272 NCIS Option A 6.189 35.722 17.30% -0.287 Group 1 3.2 -0.802 Group 2 2.977 0.513 NCIS Option B 6.153 35.722 17.20% -0.323 Group 1 3.226 -0.776 Group2 2.916 0.452 Note: data as submitted in NCIS’s response to SRA Draft #1. Table 8 data are slightly revised. *Not adjusted for NBQS

National Crop Insurance Services, Inc. 19 April 9, 2010

NCIS’s response to RMA on its first draft of the 2011 SRA examined the rate of return on retained premium over different time periods and concluded the longer the time series, and thus the more high-loss years considered such as in the 1980s and early 1990s, the lower the estimated rate of return on retained premium. It would be useful to assess expected returns by using longer time series, however data before 1998 are limited, and numerous assumptions must be made to use the earlier loss experience for analyzing the future. While RMA has reported returns for some longer historical time series, its data and methods have not been released or evaluated by third parties (see next section). One important complication is that revenue policies were not sold during the early program history. Thus, historical loss costs and loss ratios do not account for price risk. Just because yields and prices are generally negatively correlated does not mean that risk is reduced with revenue policies (i.e., rising prices offset revenue lost from declining yields). In fact, there have been a number of past years when prices and yields both fell, raising indemnity exposure for revenue policies. In years of high yields, revenue policies can pay indemnities if prices fall far enough. In addition, for policies with harvest price protection such as CRC and RA-HPO, rising prices at harvest in a year of yield losses would raise indemnities for revenue policies relative to equivalent APH policies. Figure 8 illustrates the change in corn yield (from the 1960-2009 trend) and the change in harvest price (October average of December futures) from base price (February average of December futures) for the period 1979-2009. It shows many potential years in which price changes would have raised indemnities had revenue policies been in use.

Fig. 8. Potential Price Risk: Changes in U.S. Corn Yields and Futures Prices, 1979‐2009 Bil. $ ∆ Price With revenue policies, historical 40% loss costs understate the loss in years with no yield loss but large 30% price drops. Losses are also understated in years with yield 20% loss and price gains, which increase indemnities with HPO 10%

0% ‐30% ‐20% ‐10% 0% 10% 20% ‐10% ∆ Yield

Years with yield ‐20% declines and potential indemnity increases due ‐30% Years with little yield change to HPO but potential indemnity ‐40% increases due to price declines

The year 1988 provides a specific example of the price risk had revenue policies been in widespread use at that time. Assuming all APH policies were CRC policies (or RA policies) with the harvest price option) in 1988, it can be shown that the percentage increase in

National Crop Insurance Services, Inc. 20 April 9, 2010

indemnities, compared with the actual APH indemnities, is equal to the ratio of the harvest price to the APH price election. The harvest price for corn would have been $2.89 per bushel (October average of December futures) and the base price would have been $2.17 per bushel. The actual 1988 APH price election is not in the RMA database so using an estimated basis between the CRC base price and the APH price election of 39 cents, the 1988 indemnities would have been 62% higher than the APH indemnities. Thus, adjusting loss history to account for price risk is necessary when using past data to project future outcomes.

Using historical data to look prospectively, price risk as well as yield risk must be considered, as well as other factors that will affect future returns, including program changes such as the delays in payments for underwriting gains and A&O enacted in the 2008 Farm Bill and set to take effect starting in 2012, which are equivalent to an added reduction in income estimated by NCIS to be 1.0% of premiums.

Finally, NCIS again emphasizes the important role of benchmarking in determining the appropriateness of industry income. The Grant Thornton analysis of actual company data compares returns in the crop insurance industry with returns in the Property and Casualty (P&C) industry overall. Grant Thornton found the 1992-2008 weighted-average pretax net income as a percent of retained premium adjusted for net book quota share was 14.2% with a standard deviation of 12.3%. Over the same period, the P&C weighted-average pretax net income was 17.5% with a standard deviation of 10.1%. Crop insurance industry returns have been lower and more risky than P&C industry returns.

Conclusion

RMA initially proposed unprecedented funding reductions for the industry. The industry supported realistic funding reductions in its response to the first draft SRA in order to accommodate the administration’s need for budget savings while ensuring the efficient operation of a highly successful farm program. The reinsurance provisions in the second SRA draft are less onerous than those in the first draft; however, the size of the reductions in expected underwriting gains remain excessive and detrimental to program service.

Recommendation to RMA

In response to the concerns identified above, NCIS recommends the following reinsurance provisions for the 2011 SRA.

Each state has a Commercial fund and an Assigned Risk fund.

The current state Assigned Risk funds are retained as-is, including their current retention percentages.

For the Commercial fund, the underwriting gain/loss provisions vary by state group.  State Group 1 includes the five Corn Belt states: IA, IL, IN, MN, and NE.  State Group 2 includes 28 states: AL, AR, AZ, CA, CO, FL, GA, ID, KS, KY, LA, MI, MO, MS, MT, NC, ND, NM, OH, OK, OR, SC, SD, TN, TX, VA, WA, and WI.

National Crop Insurance Services, Inc. 21 April 9, 2010

 State Group 3 includes 17 states: AK, CT, DE, HI, MA, MD, ME, NH, NJ, NV, NY, PA, RI, UT, VT, WV, and WY.

The proposed Underwriting Gain/Loss provisions for the Commercial Fund are shown in Table 7.

Table 7. Underwriting Gain/Loss Provisions (%) RMA February NCIS April 7, 2010 SRA Proposal Proposal Retained State State State State State Loss Ratio Groups Group 1 Group 2 Group 3 Group 1 (range) 2 & 3 0-50 5 5 5 5 5 50-65 40 45 50 40 40 65-100 85 95 100 75 95 100-160 65 52 40 65 45 160-220 45 20 20 45 20 220-500 10 5 5 10 5 Over 500 0 0 0 0 0

The proposed SRA includes a 7.5% Net Book Quota Share provision.

The proposed SRA includes a mechanism for rebalancing underwriting gains across states. Up to one-third of the nationwide underwriting gains collected under the NBQS provision will be redistributed to states in State Group 3. Payments will be proportional to the A&O (including CAT LAE) received, but not to exceed 200% of the A&O and CAT LAE paid in these states.

Table 8 shows the estimated effects had the NCIS proposal been in place during 1998-2008 compared with the current SRA. The estimates include the effect of the redistribution to State Group 3 of underwriting gains collected under the NBQS provision. Based on the 1998-2008 program experience, the proposal is estimated to reduce cumulative historical underwriting gains by $352 million. The decline in Group 1 states is estimated at $714 million. Group 2 states (shown by region) have an increase of $167 million. Group 3 states have an increase of $195 million, including the distribution of NBQS. The historical rate of return on retained premium over the 1998-2008 period would decline to 17.0%.

The states included in the Group 2 regions are as follows: Great Plains (CO, KS, ND, OK, SD, TX), Midwest (MI, MO, OH, WI), Southeast (AL, AR, FL, GA, KY, LA, MS, NC, SC, TN, VA) and West (AZ, CA, ID, MT, NM, OR, WA).

National Crop Insurance Services, Inc. 22 April 9, 2010

Table 8. Estimated Cumulative Impacts of the NCIS Proposal over 1998-2008 NCIS April 2010 SRA proposal Current SRA Differences

Under Under writing writing gains gains (net of (net of NBQS Under NBQS Retained redistri- Return on writing Return on redistri- Return on State Groups premium* bution) retained gains retained bution) retained and Regions Mil. $ Mil. $ premium* Mil. $ premium* Mil. $ premium* Group 1 14,150.1 3,299.0 23.3% 4,012.6 28.4% -713.5 -5.0% Group 2 Great Plains 9,832.3 738.3 7.5% 763.2 7.8% -24.9 -0.3% Midwest 3,494.7 531.8 15.2% 516.3 14.8% 15.5 0.4% Southeast 4,427.0 528.6 11.9% 446.4 10.1% 82.2 1.9% West 3,106.3 736.3 23.7% 642.4 20.7% 93.9 3.0% Group 3 711.7 289.6 40.7% 94.4 13.3% 195.2 27.4% Total 35,722.0 6,123.5 17.1% 6,475.3 18.1% -351.7 -1.0% *Not adjusted for NBQS

Table 9 presents the estimated effects of the NCIS proposal on historical 1998-2008 underwriting gains, annualized to show the equivalent impacts on the current program. Pure underwriting gains decline by $130 million per year before NBQS redistribution and by $99 million per year after redistribution.

Table 9. Estimated Annualized Impacts of the NCIS Proposal (Mil. $) NBQS State Groups and Regions UW gain redistribution Total impact impact Group 1 -159.5 -159.5 Group 2: Great Plains -6.2 -6.2 Midwest 4.9 4.9 Southeast 12.2 12.2 West 12.9 12.9 Group 3: 5.9 31.1 37.0 Total -129.7 31.1 -98.6

Unresolved Information, Data and Analytical Issues

This section lists questions the insurance industry has with respect to RMA’s data and analysis. RMA has provided very limited data on the impacts of its proposals, no analytical models used for analysis, no documentation of how expected company returns were estimated, and no details on the proposed funding reductions and how they were estimated. Consequently, the industry remains concerned about RMA’s conclusions and whether they were appropriately analyzed and

National Crop Insurance Services, Inc. 23 April 9, 2010 would like the following questions addressed:

The on-line RMA Reinsurance Run system includes data back to 1998. However, the Milliman report includes data back to 1989. In its February 17 presentation to the industry, RMA included a slide that listed the return on retained premium for four different time periods going back to 1975. Another slide presented an evaluation of GRP-like experience going back to 1958. What are the data sources for these results and are Milliman and RMA using a single source or multiple sources for the analyses?

The February 17 slide showing the estimated average rate of return over four time periods indicated that it reflected a reduction in CAT rates and participation. What were these adjustments and how were they incorporated into the analysis?

What other prospective changes to rates or coverages are included in RMA’s analysis?

Does this slide represent the results for the current SRA or the February SRA proposal?

Were all of the results on this slide produced using the same method or using different models?

Are the average rates of return computed using a simple average or weighted average (and if so, how)?

What is the relationship between this slide and the following slide of loss costs going back to 1958?

How many methods or models does RMA have for estimating underwriting gains under alternative SRA proposals?

If RMA is using more than one method, the following questions should be answered for each model.

Is the method based solely on historical data for the crop insurance program or does it simulate experience using non-program data?

Does the analysis use policy level detail information or aggregated results? What was the level of aggregation?

Is the analysis limited to a subset of the program such as selected states and/or crops? If so, what are these?

Are the results developed on a historical or prospective basis?

Does the method restate historical data in some manner?

National Crop Insurance Services, Inc. 24 April 9, 2010

How are the loss costs or loss ratios for historical years determined in RMA’s analysis? That is, how are the indemnities determined? What is the level of detail at which this analysis is performed?

Assuming that RMA’s analysis includes a restatement of prior experience to the level of the current (or 2009) rates, how is this adjustment performed? What is the level of detail at which this analysis is performed?

Is the model limited to an analysis of yield variation? How does it account for price variation?

How does the model address changes in the book of business over time? Such as: Change in the total volume of business insured Mix of crops Rates Prices Coverage levels Coverage changes (e.g., prevented planting) Plans of insurance

How are the provisions of the 2008 farm bill reflected in the analysis including: reduced A&O payment rates for individual and area plans, reduced CAT LAE, increased subsidy on Enterprise Units, delays in A&O and underwriting gain payments, and the mandated reduction in program loss ratio?

How is the introduction of the Common Crop Insurance (i.e. Combo) policy reflected in the analysis? For example, the Combo policy will introduce a revised Unit Size discount procedure.

How is the lower rate for the Biotech Endorsement reflected in the analysis?

How does RMA use program data prior to the introduction of individual producer yield coverage (i.e., the APH plan of insurance) in the mid-1980s? Describe whether these results are converted in some manner to correspond to current plans of insurance.

How does the model account for Revenue plans of insurance and other recently introduced products in terms of evaluating the results for the program in the years before these products were introduced?

How does RMA’s analysis account for company retention decisions, particularly as these may have changed over time? Also, the reinsurance cession mechanism worked differently in earlier versions of the SRA than it does today. How is this accounted for in RMA’s analysis? How does RMA’s analysis account for changes in retention due to changing levels of rate adequacy over time?

To what extent will the proposed changes in the program affect reinsurer participation, and how will this affect company retention decisions?

National Crop Insurance Services, Inc. 25 April 9, 2010

Since the number of funds is changing, how does RMA address the assignment of policies to funds in its evaluation of the proposed SRA?

Does the model estimate results based on information other than crop insurance premiums, liabilities, and indemnities? What information is used (e.g., weather data, NASS yields, soil moisture, etc.)? How is it used? What methodology is used (e.g., Monte Carlo simulation)? Is the model documented in a published paper? Is there an analysis of the qualities of the parameters and goodness of fit of the model?

Has RMA prepared an evaluation of the two industry SRA proposals (Options A and B), and if so, what are the results from that analysis?

Has RMA evaluated the impact of their proposal in relation to the Milliman reports? How does the indicated return on retained premium for each year compare to the historical results reported by Milliman?

How did RMA estimate the federal budget savings of $8.4 billion over ten year for the first draft SRA and $6.9 billion for the second draft SRA?

If these savings estimates were determined as a change from a baseline, what baseline was used? The baseline projections should include, by year: acres in the program, gross premium, retained premium, premium subsidy, indemnities, loss ratio, company underwriting gains, and A&O payments.

How were each of these variables projected over the ten-year projection period under the SRA drafts?

3. SRA Provisions

NCIS is responding to the specific terms of the proposed SRA and Appendices I-IV on a dual basis.

First, NCIS is providing a narrative explanation of its proposed changes to the SRA and Appendices I-V. The narrative generally should be understood to identify and comment on the most substative changes proposed by NCIS, especially those that in any respect might be considered novel or controversial. It does not explain the changes proposed simply for editorial purposes (primarily for consistency in the use of capitalization, grammatical conventions, and simple clarification).

Second, NCIS is submitting a red-lined version of the draft SRA and Appendices I-IV identifying all of its proposed changes to these documents. In each instance, NCIS has used RMA’s second draft as the base document. Obviously, this involves a fair amount of detail. Although the red-lining is a convenient and quick way to identify proposed changes, it may not

National Crop Insurance Services, Inc. 26 April 9, 2010 present the most comprehensible means of studying what would then be the resulting document. For that reason, NCIS also is submitting a “clean” version of each of these documents.

NCIS starts with its comments on the second draft of the SRA. Then it discusses, in order, each appendix starting with Appendix I.

Second Draft SRA

Before beginning its section-by-section comments, NCIS notes that it has added the concept of materiality, where appropriate, throughout the SRA. The red-lined version clearly identifies those additions.

I. Definitions

NCIS has revised some definitions, added others, and deleted one.

Quality Control Issues. The following definitions relate principally to making Appendix IV a more workable document:

AIP discretionary review (new) APH review (new) Area or group based plan of insurance (new) Conflict of interest review (new) Data mining (new) Field inspection (new) File review (new) Growing season inspection (new) Inspection (deleted) Non-yield based plan of insurance (new) Plan of insurance (revised) Policy review work group (new) Pre-harvest inspection (new) Program error rate (new) Verification (revised) Yield based plan of insurance (new)

The edits to the foregoing should be considered in the context of that appendix.

NCIS notes that other definitions are proposed to be revised.

“Agent of record.” This definition has been revised to make it clear that there should be one person considered the agent of record for eligible crop insurance contracts. Otherwise, there is a significant risk that each person who touches a file within an agency will be listed, thereby limiting the utility of the information reported.

National Crop Insurance Services, Inc. 27 April 9, 2010

“Experienced loss adjuster.” This definition has been revised to make it consistent with the licensing/certification language in the definition of “new loss adjuster.”

“Procedures.” In 2004, while negotiating the 2005 SRA, RMA introduced the concept of “procedures” for purposes of establishing performance standards. There was quite a bit of controversy at that time about the use of such a broad term. RMA’s current draft raises the same type of issues. In an effort to deal with those issues, NCIS has proposed that “procedures” be in place by March 15 preceding the next reinsurance year in order for them to be controlling for that reinsurance year. Thus, before submitting its Plan of Operations, each AIP will know the RMA view on performance standards. Recognizing that conditions do change through the growing and loss adjustments seasons, NCIS also has provided that procedures can be changed after the start of the reinsurance year by agreement of RMA and the AIPs. Now that the SRA is explicitly an annual agreement, RMA should recognize the benefit of contract and performance certainty added by such a definition.

“Transaction cutoff date.” This definition has been revised to clarify a timing issue with operational significance.

“Underwriting.” This has been expanded to recognize explicitly the use of automated systems.

II. Reinsurance.

In addition to the issues involving economic terms, discussed above in Section 2, revisions to II. (a) (4), (a) (8) (B), and (a) (8) (D) [in RMA’s numbering of provisions] are proposed. “Ceded” is substituted for “provided” in (a) (4), and this is a more accurate term, especially since the SRA defines “cede.”

The proposed revisions to (a) (8) (B) and (D) are more substantive. The first of the two provisions should be changed to identify the reporting requirements truly material to FCIC’s role as a reinsurer. The second provision, (a) (8) (D), is proposed to make it meaningful. If FCIC finds an AIP not to be in compliance, corrective action should be ordered. If FCIC does not know whether there is no compliance, it cannot responsibly direct the taking of corrective action.

III. Subsidies, Expenses, Fees, and Payments.

NCIS has developed above (in Section 2) the economic flaws with RMA’s A&O proposals. At this point its focus is the illegality of RMA’s approach to A&O.

Legal Issues. NCIS now turns to the illegality of RMA’s A&O proposals, in particular its response to the January 12, 2010, letter from Jonathan Franklin of Fulbright & Jaworski. That letter addressed the method for calculating A&O subsidy under the first draft of the SRA. The second draft of the SRA continues to employ an “adjusted” net book premium approach that results in A&O reimbursement rates that are less than those specified in the

National Crop Insurance Services, Inc. 28 April 9, 2010

Federal Crop Insurance Act (“FCIA”) as amended in 2008. As a result, neither RMA’s response nor the revised draft SRA alters the legal analysis presented in the January 12 letter.

RMA’s response does not even attempt to counter NCIS’s argument that the methodology employed in the draft SRA is unlawful because it calculates A&O reimbursement based on an adjusted net book premium, rather than the actual net book premium as required by the statute. Therefore, it does not appear that RMA has any substantial argument that this methodology comports with the governing statute, regardless of whether the statute requires fixed reimbursement rates. Moreover, the method of calculating A&O subsidy in the draft SRA violates the requirements of the FCIA because it fails to employ the fixed rates specified in the amended statute.

RMA contends that section 508(k) (4) of the FCIA is ambiguous and therefore that a court would be required to defer to its interpretation, which it contends is a reasonable interpretation of that language. NCIS disagrees.

RMA relies on Chevron U.S.A., Inc. v. Nat. Res. Defense Council, Inc., 467 U.S. 837, 844 (1984). The determination of whether an agency’s interpretation of a statute is entitled to Chevron deference is a two-step process in which the court must first determine whether the language of the statute is “susceptible to more than one natural meaning.” Strickland v. Comm'r, Me. Dep't Human Servs., 96 F.3d, 542, 547 n.5 (1st Cir. 1996). If Congress has spoken directly to the issue, then “that is the end of the matter,” and the language of the statute is the law. Chevron, 467 U.S. at 842. If “the statutory text is plain and unambiguous,” the court and agency “must give effect to the unambiguously expressed intent of Congress,” thereby ending the “interpretative odyssey.” Carcieri v. Salazar, 129 S. Ct. 1058, 1063-64 (2009). If the court finds that Congress’s intent is expressly apparent on the face of the statute, then there is no basis to defer to the agency’s interpretation. On the other hand, if the court finds that the language of the statute is “ambiguous with respect to the specific issue, the question for the court is whether the agency’s answer is based on a permissible construction of the statute.” Chevron, 467 U.S. at 843. An agency’s interpretation is impermissible if it is “arbitrary, capricious, or manifestly contrary to the statute.” Id. at 844.

Just because a statute may be complex or difficult to interpret does not mean that it is ambiguous. “Chevron deference to [an agency’s] statutory interpretation is called for only when the devices of judicial construction have been tried and found to yield no clear sense of congressional intent.” Gen. Dynamics Land Sys., Inc. v. Cline, 540 U.S. 581, 600 (2004). Traditional tools of statutory interpretation are thus often capable of resolving the question, even where statutes are complicated. For example, in Kerr- McGee Oil & Gas Corp. v. U.S. Dep’t of the Interior, 554 F.3d 1082 (5th Cir. 2009), which was cited in the January 12 letter to RMA, the court held that a statute prescribing relief from oil and gas royalties unambiguously precluded the use of commodity price thresholds, even though the statute at issue there was arguably more complex and subject to varying interpretation than are the provisions of the FCIA at issue here. NCIS believes that a court would find the applicable statute in this matter to be unambiguous, thus depriving RMA of any defense based on Chevron deference.

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In the first argument in its response, RMA contends that NCIS’s interpretation is wrong because it “totally ignores section 508(k)(8)(E) of the Act, which expressly authorizes FCIC to renegotiate the Standard Reinsurance Agreement for the 2011 reinsurance year and to consider alternative methods for calculating the A&O reimbursements to be included in the SRA during the renegotiation.” Response at 1. RMA states, without elaboration, that adopting an interpretation of the statute as setting fixed A&O rates would render the language of Section 508(k)(8)(E) “meaningless, redundant, or superfluous.” Id.

There is a significant likelihood that a court would hold that this separate statutory provision does not inject ambiguity into the provisions of subsections 508(k)(4)(E) and (F), which appear on their face to prescribe fixed A&O reimbursement rates for individual buy-up and area policies. RMA does not contend that the separate language of Section 508(k)(8)(E) expressly modifies or qualifies the otherwise plain language of Section 508(k)(4). Rather, it argues only that Section 508(k)(4) cannot be interpreted to establish fixed rates because doing so would render the separate language of Section 508(k)(8)(E) meaningless. This is a relatively weak interpretative principle, because as long as there is any conceivable application of subparagraph (8)(E) that is consistent with the use of fixed rates, that provision would not necessarily conflict with the specific language of subparagraph (4)(E) and should not be interpreted as nullifying the language requiring fixed rates. See, e.g., Guidry v. Sheet Metal Workers National Pension Fund, 493 U.S. 365, 376 (1990) (“As a general matter, courts should be loath to announce equitable exceptions to legislative requirements or prohibitions that are unqualified by the statutory text.”).

NCIS believes that, even with fixed A&O reimbursement rates, it would still be possible for FCIC to consider graduated reimbursement rates—and thereby comply fully with Section 508(k)(8)(E). First, it should be noted that Section 508(k)(8)(E) merely requires the agency to consider such graduated methods, rather than adopt them, and as such does not even arguably supersede any language in Section 508(k)(4) expressly prescribing which rates must be adopted. Second, it would still be possible for the agency to consider graduated rates that vary by state while still maintaining the concept of fixed rates, if those graduated rates still maintained a fixed, nationwide reimbursement rate. For example, the statute directs FCIC, when renegotiating the SRA, to consider A&O rates that “are graduated and base reimbursement rates in a State on the loss ratio for crop insurance for that State.” 7 U.S.C. § 1508(k)(8)(E)(ii)(I)(aa). FCIC could adhere to this mandate by considering graduated state-by-state rates, based on loss ratios, under which rates may be higher in some states and lower in others while still resulting in an overall company-wide rate that adheres to the fixed requirement. This reading of subparagraph (8)(E) shows that there is no inherent or necessary statutory conflict and therefore no need to read subparagraph (8)(E) as overriding the specific language of subparagraph (4)(E).

Moreover, the methodology in the draft SRA has no relation to these kinds of “graduated” rates. Rather, the draft SRA effectively lowers A&O rates not by graduating rates among states, but rather by employing the concept of an “adjusted net book

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premium” that is not referenced anywhere in the FCIA. RMA’s letter does not state that the “adjusted net book premium” used in the proposed SRA is an “alternative method” under Section 508(k)(8)(E). It does not identify it as one of the “graduated” methods described in Section 508(k)(8)(E)(ii)(I), and makes no effort to explain whether such methods were considered and why they were rejected. The only part of Section 508(k)(8)(E) referenced in RMA’s response is the requirement that RMA, in determining A&O reimbursement rates, must consider “any other method that takes into account current financial conditions of the program and ensures continued availability of the program to producers on a nationwide basis.” 7 U.S.C. § 1508(k)(8)(E)(ii)(II). But there is nothing in that language that expressly or implicitly overrides the fixed rates that appear to be set by subsections 508(k)(4)(E) and (F). And there is certainly nothing in that language that authorizes the agency to employ an adjusted net book premium. To the contrary, as set forth in the letter to RMA—and as RMA does not dispute in its response—the plain language of the statute consistently calculates A&O as a percentage of net book premium, not any “adjusted” amount. See 7 U.S.C. §§ 1508(d)(2)(B)(ii), 1508(k)(4)(A)(i), (ii), 1508(k)(4)(F).

RMA’s interpretation is extremely broad and unqualified. It contends that, under Section 508(k)(8)(E), “RMA is expressly authorized to deviate from any formula contained in Section 508(k)(4).” Response at 2 (emphasis added). There is a significant likelihood that a court would hold that the statute cannot reasonably be read in this manner. Rather, the most that can be gleaned from Section (k)(8)(E)(ii)(II) is that the agency must broadly “consider” methods of calculating A&O that “take[] into account current financial conditions of the program and ensure[] continued availability of the program,” provided those methods otherwise comply with all other statutory requirements. It is not difficult to reconcile that broad statutory mandate with the concept of fixed rates. If a court were to agree, then the language would not be rendered meaningless by such an interpretation, and RMA’s arguments would likely fail. Rather than hold that NCIS’s interpretation of subsections (k)(4)(E) and (F) renders Section 508(k)(8) meaningless, a court would be more likely to hold that RMA’s very broad and unqualified interpretation of Section 508(k)(8) is impermissible because it renders the more specific, and express, language of subsections (k)(4)(E) and (F) meaningless. See, e.g., Edmond v. U.S., 520 U.S. 651, 657 (1997) (“When faced with both a specific and general provision, this Court should interpret the provisions so that the specific provision controls.”).

RMA next argues, in the alternative, that:

the language in section 508(k)(4) is not “plain.” Section 508(k)(4)(A) sets the [A&O] reimbursement rates and states that it is subject to the other provisions in the paragraph. These adjustments would include all those contained in sections 508(k)(4)(B) through (E) because they are all in paragraph (4). Section 508(k)(4)(A) still uses the term “shall not exceed.” Therefore, an ambiguity is created with respect to the meaning of this practice in the context of the paragraph.

Response at 2 (emphasis in original).

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Although its argument on this point is somewhat unclear, RMA appears to be arguing that the statute is ambiguous as to whether the rates specified in subsections (k)(4)(E) and (F) merely amend the “shall not exceed” rates of Section 508(k)(4)(A), thereby establishing new maximum rates which cannot be exceeded, rather than establishing fixed rates. By referring to “adjustments,” RMA appears to be contending that the rates in subsections 508(k)(4)(E) and (F) merely “adjust”—rather than override—the “shall not exceed” rate of Section 508(k)(4)(A). Thus, according to RMA, it interprets “sections 508(k)(4)(B) through (E) to contain modifiers that are applied to adjust this maximum to create new maximums depending on the provision. This means that a 2.3 percent reduction from the rates in effect when the 2008 Farm Bill was enacted created a new maximum, not a fixed amount.” Response at 2-3.

There is a significant likelihood that a court would reject this argument and hold that the statute is not ambiguous as to whether the rates set forth in subsections (k)(4)(E) and (F) merely amend the “shall not exceed” rate of Section (k)(4)(A). Although RMA is correct that the amended statute makes the language of subsection (k)(4)(A) subject to the other provisions of Section (k)(4), there is nothing in the language of subsections (k)(4)(E) and (F) that appears to establish maximum, rather than fixed, rates. Notably, RMA’s letter offers no argument to counter NCIS’s assertion that the language of subsections 508(k)(4)(E) and (F) unambiguously establishes fixed rates by stating what the reimbursement rates “shall be” rather than what they “shall not exceed.” If Congress had truly intended for subsections 508(k)(4)(E) and (F) to set “new maximums,” Response at 2, the natural way to do so would have been to use the same “shall not exceed” language. Instead, Congress used exactly the opposite language in sections 508(k)(4)(E), by providing in mandatory terms what the rates “shall be” in each section, and making that rate a determinable, fixed percentage of the “premium used to define loss ratio,” i.e., net book premium.

RMA appears to contend that Congress’s amendment of the opening phrase of section 508(k)(4)(A) to read “except as otherwise provided in this paragraph,” 7 U.S.C. § 1508(k)(4)(A), creates ambiguity as to whether the rates set forth in subsections 508(k)(4)(E) and (F) amend the “shall not exceed” rates. See Response at 2 (noting that Section (k)(4)(A) “still uses the term ‘shall not exceed’” and “states that it is subject to the other provisions in the paragraph”). But it is more likely that a court would hold that this amendment removed any possible ambiguity. The phrase excepts from Section 1508(k)(4)(A) everything in paragraph 508(k)(4) that is “otherwise provided” for. Subsections 508(k)(4)(E) and (F) plainly “otherwise provide” the A&O rates for buy-up and area policies, respectively, and therefore they are unambiguously exceptions to the rates that would otherwise apply under section 508(k)(4)(A). RMA offers no cogent argument as to why language expressly stating what rates “shall be” can nonetheless be reasonably interpreted as merely amending maximum “shall not exceed” rates. And the amendment to the introductory language of Section 504(k)(4)(A) unambiguously allows for the “shall be” language to trump the “shall not exceed” language, thereby removing any potential ambiguity that would otherwise result.

Indeed, in a footnote, RMA concedes the weakness of its argument with respect to area policies covered by Section 508(k)(4)(F). There, it states that “[a]rguably section

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508(k)(4)(F) of the Act can be interpreted to create a fixed rate of reimbursement for area coverage because it is separate from sections 508(k)(4)(A) through (E).” Response at 3 n.1. Although this statement is unexplained, it is apparently based on the fact that Section 508(k)(4)(F) contains an introductory clause stating that it applies “[n]otwithstanding subparagraphs (A) through (E).” 7 U.S.C. § 1508(k)(4)(F). From this, RMA appears to concede that Section 508(k)(4)(F)—at least “arguably”—does not amend the “shall not exceed” language of Section 508(k)(4)(A) because the fixed rate for area policies applies regardless of anything to the contrary in Section (k)(4)(A) and is therefore “separate from” that section. Response at 3 n.1. But the amended introductory clause of Section (k)(4)(A) accomplishes the same result for the fixed individual buy up rate in Section (k)(4)(E). And RMA offers no reason why Congress would have specified a fixed rate for area policies while establishing only a maximum rate for other policies.

RMA appears to base its interpretation on the view that everything in sections 508(k)(4)(B)-(E) are simply “modifiers” that “adjust” section 508(k)(4)(A)’s maximum “to create new maximums depending on the provision.” Response at 2. As explained above, nothing in new section 508(k)(4)(E) appears to “modify”—rather than override— the “shall not exceed” rate of Section 508(k)(4)(A). Similarly, it would appear that the other provisions of Section 508(k)(4)(B)-(D) do not support the agency’s interpretation. As explained in the letter to RMA, and as RMA does not dispute, the pre-existing language of Section 508(k)(4)(B) was not a “modifier” that created “new maximums.” Rather, it established a fixed rate for certain policies based on rates in effect for the 1998 policy year, very much like the new statute establishes for individual buy up and area policies. See Jan. 12, 2010 Letter to RMA at 2. Similarly, RMA identifies nothing in the provisions of subsections 508(k)(4)(C) or (D) that supports its view regarding the effect of the different language in subsections 508(k)(4)(E) and (F).

Finally, RMA contends that Congress’s rejection of proposed amendments that would have employed the “shall not exceed” language is not dispositive because the phrase “shall not exceed” became “applicable to all provisions when [Congress] made section 508(k)(4)(A) subject to the provisions of all of paragraph (4),” and therefore “it was appropriate to remove the separate references.” Response at 3. But as discussed above, the addition of the phrase “except as otherwise provided” did not make section 508(k)(4)(A) “subject to” the rest of paragraph (4) in the sense that it governs the remainder of the section. Rather, it excepted the rest of paragraph from the “shall not exceed” rates set by the Board to the extent those rates are “otherwise provided” for in the paragraph. Moreover, Congress never “removed” separate references to “shall not exceed” in sections 508(k)(4)(E) and (F), because they were never there to begin with. Congress only considered—then rejected—language that would have amended section 508(k)(4)(A) to include the rate reductions. Sections 508(k)(4)(E) and (F) were then added as separate sections in the conference committee, with their mandatory language providing what the rates “shall be.” This appears to show a unified, coherent congressional intent to enact fixed rates that are excepted from (4)(A)’s “shall not exceed” language, rather than an intent to extend the reach of that language over the entire paragraph.

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RMA’s response is noteworthy in one respect for what it does not say. Nowhere in its letter does RMA take issue with NCIS’s contention that the statute requires A&O reimbursement to be calculated as a percentage of the premium used to calculate loss ratio—which under the draft SRA is the net book premium—rather than based on the invented concept of an “adjusted” net book premium. See Jan. 11, 2010 Letter to RMA at 4-7. Thus, even if RMA were correct that the statute can reasonably be interpreted as setting only maximum “not to exceed” rates (and, as explained above, there is a significant likelihood that a court would reject that position), the draft SRA would still contravene the statute by failing to base A&O rates on net book premium.

“Soft Cap.” Based on its perception that agent commissions are too high, RMA has proposed a “soft” cap on them. The cap is “soft” in one sense – companies would have the legal right to provide additional compensation through “profit sharing.” Because of the operational problems with RMA’s proposal, the reality may be that the so-called “soft” cap is a “hard” cap fixed at 80% of A&O. The provisions in question are found at Section III(a)(2)(D) & (E) of RMA’s second draft of the SRA.

RMA’s commission capping proposals raise philosophical issues that are beyond the scope of this discussion. Thus, NCIS does not advocate or oppose RMA’s proposal. Instead, the discussion provides preliminary operational and conceptual questions that should be addressed by RMA to assist companies in formulating their positions.

The language used in subparagraphs (D) and (E) raises issues affecting the cap’s operation.

What is meant by the term “direct sale and service?” RMA offers no definition for this term. This means that there can be numerous disputes regarding computing what is a “direct” cost versus any other type of cost. If, in the view of RMA, a company improperly has excluded an indirect cost in computing the 80%, it obviously faces compliance risks.

Further, this opens the question of the extent to which any “excessive” commission may have been paid to an agent. One need only recall the last few months of political and economic controversy over compensation paid to executives at financial firms receiving government assistance, and the insistence by many observers for “clawback” provisions. Will RMA be forcing companies to negotiate clawback provisions with their agents, and how will they be enforced contractually?

The 80% of A&O limitation can be enhanced by participation in a “profit sharing” arrangement. Yet, this significant concept has no definition of what constitutes “profit.” Is it determined (a) on an accrual basis or a cash basis, (b) on a company-wide, state, or agent’s book of business basis, or (c) on a pre-tax or after tax basis?

A plan for sharing profits implies terms concerning how and when profits are actually shared. Yet, RMA’s proposal gives no definition or explanation of when profit sharing payments actually can and would be made. Will advances on anticipated profits, for example, be allowed?

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Another operational issue is the approval standards that RMA would utilize with respect to proposed profit sharing plans. As made clear in subparagraph (E), the plans must be described in the Plan of Operations, and then they must be approved by RMA. RMA has provided no standards for approval.

It is difficult to address the philosophical issues implicit in RMA’s proposal without understanding whether it has analyzed all of the economic incentives and disincentives associated with it.

Obviously, RMA is intending to set a maximum amount, expressed as a percentage of A&O, that can be paid in agent commissions (absent participation in a profit sharing program). RMA’s explanation reflects no consideration of whether the supposed cap also could act as a floor. To the extent that agent commissions for any plans of insurance for any areas of the United States are less than 80% of the A&O yet to be negotiated, an agent would possess a reasonable argument that RMA’s use of 80% constitutes an official blessing of what is a fair and reasonable commission level. Will agents below that level then place companies in the bind of paying them the 80% when historically they have not received that much compensation?

Another economic incentive issue is the extent to which a cap coupled with profit sharing would distort contractual relationships among companies and agents. One can envision a situation in which agents will try to avoid doing business with companies perceived to be less profitable than others, for fear that an eventual profit sharing payment may be illusory. To the extent that happens, companies doing business in Group 2 and 3 states may encounter additional barriers to retaining agents for the sale and service of eligible crop insurance contracts. This concern directly impacts whether program delivery is consistently effective across all states and among all companies’ agents.

Other Section III Revisions. NCIS proposes revising III. (a) (2) (F) and (c) (4) [in RMA’s numbering of provisions] in addition to its proposed revisions to the economic terms of this section. The (a) (2) (F) revision is proposed as a more straightforward way of handling SSN reporting for agents of record and loss adjusters. The (c) (4) revision modifies the provision by introducing a materiality standard.

IV. General Provisions.

NCIS is proposing a number of revisions that merit noting. First, (a) (1), (4), and (5) have been revised in a fashion consistent with comments on RMA’s first draft and discussion at the March 9-10 meetings. Also, (a) (1) has been revised to require SSNs of employees and affiliates instead of affiliates “and other persons.”

Second, (b) (1), (2), (4), (7), (8), and (12) have been revised (or deleted, as appropriate) to reiterate comments on the first draft, and the sanctions in (b) (7) (A) should be subject to reduction or waiver if any change to previously reported information has been caused

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by the policyholder’s allowable election of or change in coverage; thus, (b) (8) (B) [in NCIS’ numbering of provisions] has been expanded to include this concept.

Third, there long has been a disparity between interest rates paid by FCIC and an AIP. That disparity has become egregious under current and foreseeable financial conditions. Thus, Section IV. (c) (2) has been revised. There would remain a marked difference between the pertinent rates (with an AIP essentially required to pay FCIC three percentage points more) but the gap would be narrowed. Unless (c) (2) is changed, the interest rate paid by AIPs would be punitive.

Fourth, (d) (2) has been revised based on input from the Appendix III work group.

Fifth, (f) (2) (D) has been revised to tie the procedures specifically to Appendix III.

Next, because (g) (1) provides “reasonable access” to an AIP’s offices, personnel, and records, the same standard for access to affiliates’ offices, personnel, and records should apply; thus, (g) (2) is proposed to be revised. Both provisions delete “at any time” while still permitting RMA access “during normal business hours.” Also, (g) (4) has been revised to reinstate the record retention language in the current SRA, and (h) (8) has been edited to reiterate comments on the first draft, as well as to be sure the remedy in (B) cannot exceed current A&O.

The preemption language has been expanded in Section IV. (o). FCIC should exercise in full its statutory authority to preempt State and local laws and regulations, excluding only those with specific health, safety, and similar purposes.

The informal dispute resolution provision (IV. (s)) (proposed by RMA in its first draft but dropped in the second) has been restored. Predecessor SRAs have contained a comparable provision for many years. Although rarely used, it has provided a useful and early form of alternative dispute resolution.

Section III (A) (11) of RMA’s second draft of Appendix IV requires AIPs to develop “a mechanism for seeking an interpretation of policy or procedure from FCIC in the event that the Company and another AIP disagree” on the application of FCIC procedure while servicing companion policies. NCIS proposes deleting that requirement and, as an alternative, adding a new Section IV. (t) to the SRA. Placing this concept in the SRA also achieves the benefit of expanding the availability of such an option beyond Appendix IV issues. This language is consistent with 7 U.S.C. 1508(j)(1)’s requirement that FCIC “establish standards to ensure that all claims for losses are adjusted, to the extent practicable, in a uniform and timely manner.” Additionally, it is consistent with 7 U.S.C. 1515 (a)(2)’s mandate that FCIC “work actively with approved insurance providers to address program compliance and integrity issues as such issues develop.” Although MGR-05-018 currently allows AIPs to submit requests for interpretations of FCIC procedures at issue in arbitration and litigation, AIPs, policyholders, and the crop insurance program in general would be better served if such issues were resolved before reaching the point of litigation.

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Finally, a new IV. (u) has been added to provide for phasing in certain newly created AIP requirements; at this point, the provision is a “place-holder” and the specific provisions would be added as the negotiation process is closer to an end.

NCIS also is suggesting a handful of other revisions to Section IV, many of which are proposed either for sake of consistency in drafting or for clarification: (a) (1), (b) (1), (b) (7) (B), (b) (8) (B), (d) (2), (g) (2), (h) (6), and (h) (6) and (7) (A) & (B).

Second Draft Appendix I

NCIS has inserted a number of textual changes and notations in its proposed revisions to RMA’s second draft of Appendix I. They are identified in a red-lined draft of Appendix I. In addition, NCIS provides the following explanatory comments.

Introductory paragraph. NCIS proposes two changes to this paragraph. First, because some obligations fall on FCIC (e.g., I. (b)), the introductory statement should be broadened to read “parties” rather simply the “Company.” Second, because a number of the individual provisions in Appendix I are drawn from statutes and regulations concerning government contractors, including the procurement rules and obligations set forth in the Federal Acquisition Regulations System, it is appropriate to disclaim that the Company is a government contractor because, instead, it is a party to a cooperative financial assistant agreement.

I. Procurement integrity. Subsection (b)(2) has been revised for two reasons – to make it consistent with the text of subsection (a)(2) as well as to conform this text to the statute upon which it is based. Also, subsection (e) has been revised to establish certainty that there will be no definitional conflict between it and other defined terms.

II. Drug free workplace. In addition to the changes noted in the text, NCIS believes that it is important to emphasize that the provisions of this section only apply to sites within the control of the Company.

III. Anti-lobbying. NCIS has inserted reference to the OMB disclosure form, which is the approach used in the current SRA. Also, since disclosure is the operative obligation, it is better to refer to that obligation than to one of certifying. The certification takes place through execution of the OMB form.

VI. Conflict of interest. The quality control work group proposes deleting paragraphs (a)(4) and (b)(3) and the last sentence of (d); (d) has been further edited to substitute “sales and loss adjustment” for “servicing, [etc.]” in the next to last sentence. Additional edits have been made to the preemption language in subparagraph (a)(2)(A) in an effort to make clear the scope of the limitation on preemption.

VII. Controlled business. The revisions proposed by NCIS should be clear, but NCIS also notes that it has deleted subsections (c) and (e): (c) because the statutory obligations fall on agents, not AIPs, and (e) because it appears to be an internal RMA note. If NCIS has misunderstood what

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subsection (e) constitutes, then RMA still should delete the text of this provision because it is inappropriate given the text of subsections (a) through (d).

VIII. Training requirements. Section VII. (e) has been deleted. Requiring recertification every three years is inappropriate. Instead, strengthening the training requirement, as proposed in revisions to Appendix IV, using a combination of classroom and field training is the best method of assuring that loss adjusters become proficient and remain proficient in the performance of their duties.

Citation revisions. Statutory citations need to be updated/corrected in four instances, as indicated by NCIS in the red-lined version it has prepared of Appendix I. To be specific, those edits are in sections I.(g), VII. (d) (1), XII., and XIV.

Second Draft Appendix II

NCIS proposes various revisions to RMA’s second draft of Appendix II. They are identified in a red-lined draft of Appendix II. One general change by NCIS has been to delete the cross references in the draft Appendix II to equivalent revisions in Appendix II to the current SRA; those cross references were informative and useful in the review process, but can be deleted at this stage. In addition, NCIS provides the following explanatory comments.

Introductory paragraph. Based on its concern that one or more terms of Appendix II might be misconstrued to constitute an admission or a basis for a finding that AIPs are government contractors, NCIS proposes inclusion of language negating any such concern on behalf of AIPs. The language is similar to the addition which NCIS has proposed to the introductory paragraph in Appendix I.

II. Certifications. Subsections (e) through (h) have been revised to make the lead in language consistent with the provisions of subsections (a) through (d).

III. Financial Information. Subsections (c) (1) through (4) have been revised to make them consistent with subsections (b) (1) through (4). NCIS suggests revising subsection (e) to make it more consistent grammatically with the language of subsections (a) - (d).

Two types of changes have been made to subsections (f) through (h). One revised the lead in language to create a more explicit obligation of AIPs. The other deletes the “independently audited” parentheticals in paragraph (1) of each of these three subsections. There is no reason for such a provision – the SRA is not a “cost plus” contract, and RMA is not reimbursing expenses of AIPs on either a line item or category basis; A&O, instead, is a percentage of premium. RMA’s approach, moreover, is unworkable since independent accountants do not verify the accuracy of all entries in a report. Quite simply, expecting an audit by an independent accountant to provide actual expense verification for all transactions misperceives the role that accountants perform when they audit financial documents. In developing an opinion as to whether financial documents comply with generally accepted accounting principles, an auditor does not reconstruct transactions in applying generally accepted auditing standards. Rather, the

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auditor relies on selective sampling efforts and other procedures to review statements and to opine whether the materials, taken as a whole, reasonably present financial information. Bily v. Aurthur Young & Co., 3 Cal. 4th 370, 380, 834 P. 2nd 745, 748-749 (1992). NCIS does not understand how an audit could be performed, using sampling techniques, that would deal with any real or perceived concern of RMA about the accuracy of individual reports.

IV. Insurance Operations. Several changes worth noting are proposed for this section. Subsection (e) replaces “key personnel” with the term “senior management employees,” a less ambiguous term and one more closely approximating other types of reporting obligations found in Federal law. Additional changes to (e) are eliminating the 30 day reporting requirement and providing for situations where one person performs two or more functions. The last sentence in each of (i) and (j) has been deleted, a suggestion of the Appendix IV quality control work group. Subsections (m) and (n) have been revised based on input from the Appendix III work group. Also subsection (o) has been deleted to reflect deletion of the “soft cap” provisions of the text of SRA section III. (a) (2) (D) and (E).

V. FCIC Reinsured Business Plan. Subsection (c) (2) concerns business combinations between two AIPs. Without limiting the discretion of FCIC in any respect, NCIS believes that the clear sense of this provision relates to the resulting combination of the two businesses, and thus it has inserted the word “combined” to describe net book premiums and associated liability.

Second Draft Appendix III

The Appendix III “Policy Acceptance and Storage System Manual” provides the contractual and technical specifications for submitting policy data to FCIC, along with outlining the accounting processes that support AIP reimbursements and payments with FCIC. Appendix III requirements encompass twenty-six different record types that capture the sales, production history reporting, acreage reporting, loss adjustment, premium payments, and quality control efforts of the AIPs.

The NCIS response to the first RMA draft of Appendix III included suggested editorial changes to make it more consistent with the remainder of the SRA. NCIS also made numerous corrections to the Table of Contents which were not consistent with that draft. To allow for easier consideration of the more substantive recommendations, these editorial revisions are not included in the second draft response. However, NCIS believes that standardization of these terms and editorial revisions should be made in any final draft of Appendix III.

A fundamental challenge of Appendix III is the difficulty of managing the process by which FCIC annually modifies it to reflect the implementation of ongoing policy and procedural changes. Additional key concerns addressed in this response to the second draft include: (1) FISMA; (2) ITM and implementation of the Common Basic and Crop Insurance Provisions; and (3) CIMS/CLU reporting requirements.

Consistent with RMA’s desire that the SRA be an annual agreement based on terms and conditions in effect as of March 15 preceding the reinsurance year, NCIS proposes that any draft changes for the upcoming reinsurance year be provided by February 7 with a twenty-one day response timeframe for AIP comments to the draft, thus giving RMA fifteen days to issue a final

National Crop Insurance Services, Inc. 39 April 9, 2010

Appendix III for the reinsurance year, with changes thereafter limited to implementing revisions of the procedures (as defined in the SRA) and corrections or clarifications necessary to bring the reporting requirements in line with procedures. As annual revisions to Appendix III are in fact a limited renegotiation of the SRA, NCIS believes that it is incumbent on RMA to provide its reasoning for rejecting AIP recommended revisions to the proposed draft.

AIPs seek to honor the SRA’s requirements to report data as required by the crop insurance policy and procedures, along with other SRA data reporting requirements, by ensuring that the necessary data reporting requirements and supporting program data necessary to service the policy are created as part of the policy and procedural development activities. By ensuring data reporting requirements can only be introduced once the applicable policy and procedural modifications have been made and any supporting data are available, unnecessary costs incurred by AIPs and RMA to correct program deficiencies that were not identified during development can be eliminated. AIPs also propose a hierarchy of controlling procedural authority to eliminate any potential inconsistencies arising from the ongoing changes occurring in the program. Accordingly, NCIS proposes that one of FCIC’s responsibilities listed in Appendix III should be the requirement to provide access to data sets, GIS shape files, or interactive backend web services that are necessary to sell and service any policy so that AIPs may be able to develop sales and servicing systems for these policies that are most efficient for their operations.

NCIS also proposes to clarify the industry’s responsibility to develop policy sales and servicing systems, and it seeks to have the delivery of livestock and AGR/AGR-Lite be incumbent on all AIPs participating in these programs by shutting off the RMA developed eDAS graphical frontend website, which will also provide a long-term cost benefit to RMA.

As proposed in the SRA and Appendix II, NCIS further proposes that AIPs will certify that they will develop, implement, and maintain information controls and protect information systems and records in a manner consistent with FISMA, the Privacy Act, and the FCIA, with guidance for AIPs to become FISMA compliant being addressed within Appendix III. In addition, AIPs will also provide a high-level overview of their information systems architecture with their annual Plans of Operations.

RMA’s ITM project plans not only call for a testing and implementation timeframe that stretches well into the 2011 reinsurance year, and a second phase of development efforts that will impact the 2012 reinsurance year and beyond. It is for this reason that AIPs recognize the need for an ongoing agreement to negotiate yet undefined requirements in good faith, and in doing so to look for alternatives that would be most cost effective, including staging these changes over the course of several reinsurance years.

The requirement to report acres by Common Land Unit (CLU) presents a significant increase in each AIP’s operational burden. As an example, the number of CLU data lines that have to be reported is expected to be an average of 2.5 times the number of current acreage lines as CLU reporting is phased in. Accordingly, the CLU reporting requirements for the full five-year life of the SRA should be included in Appendix III so that AIPs can adequately prepare their operations to deal with this increasing workload. In addition, RMA has pledged that the necessary program procedures governing how CLU acreage data collection will be in place for the 2011 reinsurance year, and such procedure is integral to any mandatory CLU reporting requirement. However, for

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CLU reporting to move beyond a “pilot” phase, RMA has to make the necessary policy changes to compel producers to report acreage by CLU. Until all of these policy and procedural issues can be resolved, AIPs recommend maintaining a minimal set of CLU reporting requirements over the anticipated five-year life of this agreement.

Similarly, ARPA data reconciliation utilizing Common Information Management System (CIMS) discovery reports potentially impacts over 24% of the 1.1 million policies in force each reinsurance year. Because of this potential operational impact, AIPs seek to have any ARPA reconciliation requirements aligned with the overall goal of quality control program reviews conducted under Appendix IV, with a clear definition of FSA, RMA, and AIP responsibilities defined in 4-RM before any mandatory reconciliation reporting requirement is enacted. NCIS also seeks to leverage RMA’s data mining initiatives by requesting that AIPs have access to the general crop insurance dashboard systems that is provided by CAE to RMA as well as a definitive timeframe for RMA to provide annual and historical detailed crop insurance data sets for use in analysis, underwriting, loss adjustment, and quality control functions.

Second Draft Appendix IV

Appendix IV concerns two important functions – training and quality control. The following paragraphs address the changes proposed by NCIS in both areas.

Training

NCIS recommends that each Company include industry accepted minimum standards for test proficiency and satisfactory work performance in place of the requirement that each Company shall state the minimum acceptable standards for training as part of their “Training and Performance Evaluation Plan (TPEP).” The required training hours for agents and adjusters were re-inserted as in earlier submissions (sections II. (b) (2) and (c) (2)). Established training standards and requirements promote industry uniformity and consistency of quality across companies and programs. RMA’s proposal of removing standard hours and other uniform training standards, and requiring each company to establish its own unique standards, is counter to State Insurance Department practices, inhibits reciprocity across states and companies, and introduces program integrity vulnerabilities. Further, with RMA’s compliance focus being on increased awareness and adherence to policy and procedure, introducing this type of individual/subjective (non-standardized) training seems counter intuitive to these stated goals and objectives.

Perhaps RMA is unaware that its approach of stating a training objective, without also specifying minimum hours of continuing education, is contrary to prevailing standards for regulating professional development following initial licensing. Using Kansas to illustrate the point, here are examples of continuing professional development requirements based on minimum hours per reporting period:

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Profession CPD Requirements

Accountants 80 hours every 2 years

Attorneys 12 hours every year, including 2 in ethics

Dentists As specified by Dental Board

Engineers 30 hours every year

Insurance agents Various biennial requirements: 12 for life and health, 2 for crop, 4 for title, etc.

Private investigators 8 hours every 2 years Psychologists As specified by State Board, but no less than 6 hours on diagnosis and treatment and 3 hours on ethics every 2 years

These examples convey a cogent message – regulatory authorities recognize their own responsibility to set minimum standards for continuing professional development when they specify minimum hours to be spent in such an endeavor.

The requirement in the “Training and Performance Evaluation Report (TPER),” that each Company is required to compare the loss ratios of each agent and each adjuster with other agents and adjusters in the area, was removed. Evaluating each agent and each adjuster as structured in the second draft (section II. (a) (3)) by comparing their individual loss ratios at the Company level has severe limitations. Having no industry wide standards will lead to inconsistencies with what data is being collected, how it is being collected by each Company, and in what manner it will be used for analysis. Not only would these evaluations be incomplete, but most likely erroneous conclusions would be drawn from their results.

The requirements that the Company must certify compliance with all training provisions prior to any sales or service for the reinsurance year (sections II.(c) and (d) (3), using RMA’s numbering) were removed. At the time this certification would be made, there are multiple items that could impact training that may be unknown, such as changes to the CIH, the LAM, and policy provisions. As such, it is impractical to require this certification in advance of a reinsurance year.

Quality Control

NCIS has inserted a number of textual changes and notations in its proposed revisions to RMA’s second draft of Appendix IV and associated SRA definitions. They are contained in a red-lined draft of Appendix IV (using RMA’s second draft as the base document) and the definitions section of the SRA. In general, the revisions are necessary in order to ensure a comprehensive

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and proactive approach to quality control. In addition to the changes noted in the text, NCIS provides the following explanatory comments.

SRA Definitions. Several new terms have been added and others redefined in support of needed clarity and detail for the review categories and procedures within Appendix IV. The definition for “inspection” has been removed, but the term’s underlying purpose has been reincorporated and maintained in a more logical distribution throughout the quality control guidelines.

Section I. Subsection (b) has been revised to clarify FCIC’s evaluation of a company’s quality controls.

Section II. Subsection (a) (3) has been revised to add clarity to the incorporation of requirements under 7 U.S.C. § 1515(f). Subsections (b) and (c) have been revised to remove impractical certifications, clarify the distinction between new and experienced agents and adjusters, and include minimum training hour requirements to ensure a degree of uniformity amongst companies.

Section III. Subsection (a) has been revised to add detail and address concerns of practicality associated with general company responsibilities. Subsection (a)(3) has been revised to specify that real time electronic quality control review reporting should be utilized to replace an ineffective annual report. Subsection (b) has been added to incorporate FCIC responsibilities. Subsection (c) has been revised and restructured. The restructuring is premised on an active partnership with RMA wherein the quality control program is primarily driven by data mining that is reviewed annually, allowing for targeted emphasis to be placed around areas of concern. Efficiencies will be gained through reduction of ineffective or redundant reviews and procedures. It is a flexible quality control program that is more clearly defined and founded on a partnership relationship, yet still recognizes RMA’s regulatory oversight responsibility and authority. In addition, greater clarity and detail has been added to the specific review categories and procedures to reduce misinterpretation as well as to solidify the requirements lessening the need to reference external manuals or directives.

Section IV. This section has been revised to add clarity to the incorporation of requirements under 7 U.S.C. §1515(d). Subsection (c) was added to stipulate procedures to address instances where FCIC receives notification of program integrity complaints or concerns from external sources and action by the Company may be necessary.

National Crop Insurance Services, Inc. 43 April 9, 2010

CLEAN VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

STANDARD REINSURANCE AGREEMENT

between the

FEDERAL CROP INSURANCE CORPORATION

and the

(Insurance Company Name) (Hereafter “Company”)

(City and State)

This Agreement establishes the terms and conditions under which the Federal Crop Insurance Corporation (FCIC), supervised by the Risk Management Agency (RMA) as authorized in section 226A of the Federal Agriculture Improvement and Reform Act of 1996, will provide subsidy and reinsurance on eligible crop insurance contracts sold by the Company. This Agreement is authorized by the Federal Crop Insurance Act (Act) and regulations of FCIC published at 7 C.F.R. chapter IV (regulations).

This is a cooperative financial assistance agreement between FCIC and the Company to deliver eligible crop insurance contracts under the authority of the Act. For the purposes of this Agreement, use of the plural form of a word includes the singular and use of the singular form of a word includes the plural unless the context indicates otherwise. The Table of Contents and headings in this Agreement are descriptive only and have no legal effect on FCIC or the Company.

This Agreement becomes effective upon its execution by FCIC and the Company, and the annual approval of the Company's Plan of Operations by FCIC for the applicable reinsurance year. This Agreement is a single year agreement that may be effective for a subsequent reinsurance year in accordance with section IV.(l).

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TABLE OF CONTENTS

Pages

I. Definitions 1-9

II. Reinsurance

(a) General Terms 9-13 (b) Reinsurance 13-21

III. Subsidies, Expenses, Fees, and Payments

(a) Subsidies and Expenses 21-26 (b) Administrative Fees 26-27 (c) Payments 27-28

IV. General Provisions

(a) Collection of Information and Data 28-29 (b) Reports 29-31 (c) Interest 32 (d) Escrow Account 32-33 (e) Supplemental Insurance 33 (f) Insurance Operations 34-35 (g) Access to Records and Operations 35-36 (h) Compliance and Corrective Action 36-39 (i) Suspension 39-40 (j) Termination 40-41 (k) Disputes and Appeals 41 (l) Agreement Change Date 41 (m) Funding Contingency 41 (n) Previous Obligations 42 (o) Preemption of State Law 42 (p) Discrimination 42 (q) Set Off 42-43 (r) Assignment 43-44 (s) Informal Resolution (t) Interpretation of FCIC Procedures (u) Transitional Implementation

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SECTION I. DEFINITIONS

To the maximum extent practicable, terms that have been defined in the incorporated regulations and the Act will be given the same meaning for the purpose of this Agreement. Since some terms may have more than one definition in the regulations and the Act, the specific regulation or section of the Act to be used will be specified herein.

“Act” in lieu of the definition in the incorporated regulations, means the Federal Crop Insurance Act (7 U.S.C. §§ 1501-1524).

“Actuarial data master file” means the electronic data processing (EDP) compatible information distributed by FCIC that contains premium rates, program dates, and related information concerning the crop insurance program for a crop year.

“Additional coverage” has the same meaning as the term “additional coverage” in section 502(b)(1) of the Act (7 U.S.C. § 1502(b)(1)).

“A&O subsidy” means the subsidy for the administrative and operating expenses paid by FCIC on behalf of the policyholder to the Company for additional coverage level eligible crop insurance contracts in accordance with section 508(k)(4) of the Act (7 U.S.C. § 1508(k)(4)).

“Administrative fee” means the processing fee the policyholder must pay under an eligible crop insurance contract.

“Affiliate” means any person, including, but not limited to, a managing general agent, agent, service provider, and loss adjuster, that: (1) collects premiums, services the policy, adjusts, or settles claims; (2) collects, processes, manages, and reports electronic data for the purposes of selling, administering, or servicing eligible crop insurance contracts for the Company; or (3) directly or indirectly, through one or more intermediaries, has the authority to control any aspect of the management of the book of business or any other decision made under this Agreement, without the prior and specific approval from the Company. This definition excludes commercial reinsurers and PICs if such reinsurers or PICs do not have the authority to control any aspect of the management of the book of business or any other decision made under this Agreement, without the prior and specific approval from the Company.

“Agency” means the person authorized by an AIP, or its designee, to sell and service eligible crop insurance contracts under the Federal crop insurance program.

“Agent” means any individual who is: (1) licensed by a State in which eligible crop insurance contracts are sold and serviced for the reinsurance year; and (2) authorized by the Company, or the Company’s designee, to sell and service such eligible crop insurance contracts.

“Agent of record” means, for the purposes of each eligible crop insurance contract, the primary Agent or Subagent who: (1) sells or services that eligible crop insurance contract; 1 DB04/763432.0030/2554262.1 WP08 CLEAN VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

(2) provides substantive assistance in the selling or servicing of that eligible crop insurance contract; and (3) provides information to or obtains information from the policyholder for that eligible crop insurance contract. An agent of record shall be reported by the Company for each eligible crop insurance contract, in accordance with Appendix III.

“Agreement” means this Standard Reinsurance Agreement, including Appendices, the Act, and regulations, in effect as of the July 1 start of the reinsurance year, unless otherwise provided for in the Agreement. An Agreement in effect for a reinsurance year constitutes a separate and distinct Agreement from any Agreement that may be in effect for any other reinsurance year, even if the Agreement has been renewed in accordance with section IV.(l) Unless specifically provided for in this Agreement, if there is a conflict between a provision of the Act, the regulations, or procedures with the terms of this Agreement, the order of precedence will be: (1) the provisions of the Act; (2) the regulations; (3) this Agreement; and (4) the procedures, with (1) controlling (2) and (2) controlling (3), etc. The Act and regulations are available on the RMA website (www.rma.usda.gov).

“Agricultural commodity” has the same meaning as the term “agricultural commodity” in section 518 of the Act (7 U.S.C. § 1518), excluding livestock.

“AIP discretionary review” means a review conducted on an eligible crop insurance contract at the sole discretion of the Company.“Annual settlement” means the settlement of accounts between the Company and FCIC for the reinsurance year, beginning with the October monthly transaction cutoff date following the end of the subsequent reinsurance year and continuing monthly thereafter as necessary.

“APH review” means verification in accordance with Appendix IV procedures of actual yields certified by a policyholder of an eligible crop insurance contract in support of a yield based plan of insurance policy’s actual production history (APH).“Approved insurance provider (AIP)” means a legal entity, including the Company, which has entered into a Standard Reinsurance Agreement with FCIC for the applicable reinsurance year.

“Area or group based plan of insurance” means those plans of insurance that do not require a production history data base or verification of an insured’s actual production, inventory, or revenue.

“Billing date” means the date specified in the actuarial data master file as the date by which policyholders are billed for premium due on eligible crop insurance contracts.

“Book of business” means the aggregation of all eligible crop insurance contracts in force between the Company and its policyholders that have a sales closing date within the reinsurance year and are eligible to be reinsured under this Agreement.

“Cancellation date” has the same meaning as the term “cancellation date” in the applicable eligible crop insurance contract. 2 DB04/763432.0030/2554262.1 WP08 CLEAN VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

“CAT LAE” means the reimbursement paid by FCIC for catastrophic level eligible crop insurance (CAT) contracts (as authorized in section 508(b) of the Act) (7 U.S.C. § 1508(b)) in accordance with section 508(b)(11) of the Act (7 U.S.C. § 1508(b)(11)).

“Cede” means to pass to another all or part of the net book premium and associated liability for ultimate net losses on eligible crop insurance contracts.

“Claim” means a request under an eligible crop insurance contract for an indemnity in an amount certain on a Company form that meets FCIC’s standards.

“Claims supervisor” means any person having immediate or day-to-day supervisory control, management or oversight authority of the activities of loss adjusters or other persons who determine whether an indemnity will be paid and the amount thereof.

“Company payment date” means the last business day of the month.

“Conflict of interest review” means a review that may be either mandatory or AIP discretionary as determined by the procedures in Appendix IV and is conducted on a payable claim for indemnity.

“Contract change date” has the same meaning as the term “contract change date” in the applicable eligible crop insurance contract.

“Controlled Substance” has the meaning provided in 7 C.F.R. § 3021.610.

“Conviction” has the meaning provided in 7 C.F.R. § 3021.615.

“Cooperative association” for the purposes of section 508(b)(5)(B) of the Act (7 U.S.C. § 1508(b)(5)(B)) means a member owned and controlled entity that is recognized by the State in which the entity is doing business as a cooperative related to agriculture.

“Criminal Drug Statute” has the meaning provided in 7 C.F.R. § 3021.625.

“Data mining” means working in partnership with the Center for Agricultural Excellence (CAE) (or successor),RMA, and AIPs by incorporating the latest advances in database technology into a single, centralized “data warehouse” of all the crop insurance-related data in RMA databases over time. Federal investigators, or RMA staff, or AIPs in cooperation with RMA staff will use this centralized data warehouse to search, or “mine,” existing data records to compare policies and/or detect individual producers whose policies demonstrate atypical or anomalous patterns. Data mining will also be used to analyze and uncover larger national patterns that may indicate patterns of misrepresentation, fraud, waste, or abuse.

“Drug-free Workplace” has the meaning provided in 7 C.F.R. § 3021.635.

“Eligible crop insurance contract” means an insurance contract with an eligible producer: (1) covering an agricultural commodity authorized to be insured under the Act

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and approved for sale by FCIC; (2) with terms and conditions in effect as of the applicable contract change date; (3) that is sold and serviced in accordance with the Act and FCIC regulations; and (4) that has a sales closing date within the reinsurance year.

“Eligible producer” means a person who has an insurable interest in an agricultural commodity, has not been determined ineligible to participate in the Federal crop insurance program, and possesses a United States issued social security number (SSN) or employer identification number (EIN).

“Employee” has the meaning provided in 7 C.F.R. § 3021.640.

“Experienced agent” means a person licensed by a State to sell and service eligible crop insurance contracts, who has completed at least one full year of sales and service, and is current on certification requirements as may be specified by FCIC.

“Experienced loss adjuster” means a person who is licensed by a state, or has passed a proficiency testing program approved by FCIC, as applicable, and has completed at least one full year of loss adjustment and is current on certification requirements as may be specified by FCIC.

“FCIC payment date” means the first banking day following the 14th calendar day after FCIC receives the signed, certified monthly or annual settlement report and supporting data from the Company upon which any payment is based.

“Field inspection” means an onsite visit to the policyholder’s farming operation that may include one or more of the following: determining eligibility; compliance with program terms and conditions; the correct amount(s) of premium and any indemnity, prevented planting or replant payment; or whether agents and loss adjusters have complied with all applicable procedures. A field inspection also may include, but is not limited to, review of preliminary and final loss adjustments, pre-harvest or growing season inspections, pre- acceptance inspections, the verification of adequate records, a determination that the reported practice is being carried out in accordance with good farming practices, a determination of whether the crop has been replanted, or to evaluate agent or loss adjuster conduct or the circumstances of a loss.

“File review” means a review of documents contained in a policyholder’s file maintained by the Company or an affiliate. When a file review is performed, appropriate documents will be reviewed to determine whether the information or data was timely submitted and accurate and to verify that information to support a claim’s approval or denial is appropriate and accurate based on information required to be obtained under the applicable procedures and that supporting documents have been properly used in document completion.

“FSA” has the same meaning as the term “Farm Service Agency” in section 1. of the Common Crop Insurance Policy Basic Provisions.

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“Growing season inspection” means a visit to the policyholder’s farming operation during the insured crop’s growing season for the purpose of making findings which may include but are not limited to whether good farming practices are being carried out on the insured crop.

“Immediate family” means an individual’s father, mother, stepfather, stepmother, brother, sister stepbrother, stepsister, son, daughter, stepson, stepdaughter, grandparent, grandson, granddaughter, father-in-law, mother-in-law, brother-in-law, sister-in-law, son- in-law, daughter-in-law, the spouse of the foregoing, and the individual’s spouse.

[Note – Inspection has been deleted as a definition. The verification requirements have been reincorporated into Appendix IV. The basic requirements within the term’s definition have been moved to the General Company Responsibilities in section III of Appendix IV. That placement has broader applicability. The general requirements, when used in conjunction with the recommended definitions for the various review categories plus the added review category requirement detail, will provide a clearer and more specific description of the various review procedures.

“Insurable interest” has the same meaning as the term “share” in the applicable eligible crop insurance contract.

“Loss adjuster” means a person who verifies information affecting the coverage and makes factual determinations regarding the existence or amount of loss under a claim made by the policyholder.

“Loss ratio” means the ratio calculated by dividing the ultimate net loss by the net book premium, expressed as a percentage. For example, if $1 ultimate net loss is paid and 50 cents net book premium is received, this would be expressed as a 200 percent loss ratio.

“Managing General Agent (MGA)” means an entity that meets the definition of managing general agent under the laws of the State in which such entity is incorporated and in every other state in which it operates, or in the absence of such State law or regulation, meets the definition of a managing general agent or agency in the National Association of Insurance Commissioners Managing General Agents Act, or a successor Act.

“Material” means an act or omission that, as determined by FCIC, would: (1) cause FCIC to assume a significant additional risk which it would not otherwise have assumed but for the act or omission; (2) cause the amount paid by or to FCIC to significantly differ from the amount that would otherwise be paid or owed but for the act or omission; (3) likely preclude or make it substantially more difficult to carry out the requirements of the Agreement and procedures; or (4) create a program vulnerability that could cause a payment to be made that would be significantly different than would otherwise be made if the act or omission had not occurred.

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“Net book premium” means the premium calculated in accordance with section IV.(b)(8) totaled for all eligible crop insurance contracts, less A&O subsidy, CAT LAE, cancellations, adjustments, and administrative fees.

“New agent” means a person licensed by a State to sell and service eligible crop insurance contracts who has not completed one full year of sales and service.

“New loss adjuster” means a person who is licensed bya State, or has passed a proficiency testing program approved by FCIC, as applicable, and has not completed one full year of loss adjustment.

“Non-yield based plan of insurance” means those plans of insurance that do not require a production history data base but may require verification of an insured’s current crop year actual production, inventory, or revenue in order to determine any indemnity.

“Person” means an individual or legal entity.

“Personally Identifiable Information” means any information about an individual maintained by the Company and its affiliates, including but not limited to, education, financial transactions, medical history, and criminal or employment history and information which can be used to distinguish or trace an individual’s identity, such as

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name, social security number, date and place of birth, mother’s maiden name, biometric records, etc., including any other personal information which is linked or linkable to an individual.

“Plan of insurance” means a broad category of crop insurance containing one or more types of eligible crop insurance contracts.

“Plan of Operations” means the documents and information the Company must submit in accordance with section IV.(f)(2), Appendix II, and applicable procedures.

“Policy Acceptance and Storage System (PASS)” means any RMA or FCIC approved electronic data processing (EDP) system that receives and accepts or rejects Company submitted data for eligible crop insurance contracts.

“Policy Issuing Company (PIC)” means an insurance company that issues eligible crop insurance contracts reinsured under this Agreement on behalf of the Company. “Policy review work group” means a work group formed in accordance with section III(b)(4) of Appendix IV. The work group will be composed of FCIC representatives from Insurance Services, Product Management, and Compliance and representatives of AIPs who will meet collectively on an annual basis, or more often on an ad hoc basis if deemed necessary by the work group. At a minimum, the work group will meet annually on a date that is not less than sixty days prior to the date that AIPs are required to submit their Plan of Operations. Designated representatives, meeting agendas, meeting dates and locations will be coordinated through Insurance Services.

[Note - The App. IV reference above cites Section 515 [7 U.S.C. 1515] (a)(2) of the Act which states that FCIC shall work actively with approved insurance providers to address program compliance and integrity issues as such issues develop. Specific functions of the workgroup are specified elsewhere within Appendix IV.]

“Policyholder” means an eligible producer who has been issued one or more eligible crop insurance contracts.

“Procedures” means the applicable handbooks, manuals, bulletins, memoranda or other written directives issued by FCIC related to an eligible crop insurance contract and this Agreement as issued on or before March 15 prior to the next reinsurance year. Procedures issued thereafter shall be acceptable to both FCIC and the Company.

“Producer premium” means that portion of the premium for an eligible crop insurance contract payable by the policyholder.

“Program error rate” means the error rate determined by RMA as a result of its National Operation Reviews of AIPs.

“Protected Information” means any Personally Identifiable Information about a policyholder, or information about the policyholder’s farming operation or insurance policy, acquired from the policyholder, USDA, the Comprehensive Information 7 DB04/763432.0030/2554262.1 WP08 CLEAN VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

Management System, or the policyholder’s previous or current approved insurance provider or agent that is protected from disclosure by the Privacy Act of 1974 (5 U.S.C. § 552a), section 502(c) of the Act (7 U.S.C. § 1502(c)), or any other applicable Federal statute. This definition includes all hard copy or electronic information.

“Rebate” means to pay, allow, or give, or offer to pay, allow or give, directly or indirectly, either as an inducement to procure insurance or after insurance has been procured, any benefit (including money, goods or services for which payment is usually made [except any service provided to fulfill an obligation of the Company under this Agreement]), discount, abatement, credit, or reduction of the premium named in the insurance policy and any other valuable consideration or inducement not specified in the policy.

“Records” means documentation in any form that relates to an eligible crop insurance contract or this Agreement. Such documentation includes original signed documents, or legible electronic images of the original signed documents, any other documents, or legible electronic images of any other documents, and electronic information either produced by the Company or an affiliate or obtained from outside sources or the policyholder that are utilized by the Company or an affiliate to establish, calculate, verify or determine a policyholder’s program eligibility, insurance coverage, APH yields, premium, liability, or indemnity.

“Reinsurance year” means the term of this Agreement beginning July 1 and ending on June 30 of the following year and, for reference purposes, identified by reference to the year containing June.

“Relative” means an individual who: (1) is immediate family; or (2) either resides in the household of, or engages in business with respect to, a farming operation with the person in question, regardless of whether or not the individual is immediate family.

“Retained” as applied to ultimate net losses, net book premium, or book of business, means the remaining liability for ultimate net losses and the right to associated net book premiums after all reinsurance ceded to FCIC under this Agreement.

“Risk subsidy” means that portion of the premium for an eligible crop insurance contract paid by FCIC on behalf of the policyholder.

“Sales closing date” has the same meaning as the term “sales closing date” in the applicable eligible crop insurance contract.

“Sales supervisor” means any person having immediate or day-to-day supervisory control, management or oversight authority of the activities of sales agents or sales agency employees on behalf of the Company.

“Satisfactory performance record” means a record of performance that demonstrates substantial conformity with applicable requirements, as specified in section II.(a)(9).

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“Satisfactory work performance” means the work of the agent, loss adjuster, or other affiliates that is evaluated annually and found to be in compliance with the requirements of this Agreement.

“Service provider” means managing general agents, and any other entity (other than an agent or agency) who issues or services eligible crop insurance contracts, prepares or transmits data, or, who on a regional, State or other area basis, provides loss adjustment services. Regardless of any other factor, a service provider is an affiliate.

“Signature” means the affixing of a person's name in a distinctive way as a form of identification or authorization, including in an electronic or digital form as approved by FCIC.

“State Group 1” means Illinois, Indiana, Iowa, Minnesota, and Nebraska.

“State Group 2” means Alabama, Arizona, Arkansas, California, Colorado, Florida, Georgia, Idaho, Kansas, Kentucky, Louisiana, Michigan, Missouri, Mississippi, Montana, North Carolina, North Dakota, New Mexico, Ohio, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Texas, Virginia, Washington, and Wisconsin.

“State Group 3” means Alaska, Connecticut, Delaware, Hawaii, Maine, Massachusetts, Maryland, Nevada, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Utah, Vermont, West Virginia, and Wyoming.

“Subagent” means any individual: (1) licensed by a State in which an eligible crop insurance contracts is sold and serviced for the reinsurance year; and (2) who provides on behalf of an Agent any sales or service, or assistance with sales and service, for some or all of the Agent’s eligible crop insurance contract(s).

“Trade association” means an entity recognized by the State in which the entity is doing business as a trade association and shall not include an organization that is formed for the purposes of providing insurance.

“Transaction cutoff date” for weekly data reporting is 8 p.m. Central time on Friday of each week and for monthly data reporting is 8 p.m. Central time on Friday after the first Sunday of the month. Any transaction due date stipulated herein that occurs on a Saturday will be due by the following Friday’s transaction cut-off date.

“Ultimate net loss” means the amount paid by the Company under any eligible crop insurance contract reinsured under this Agreement in settlement of any claim and in satisfaction of any judgment, arbitration award, or mediation (including any interest awarded as specified in section XI.(e)(1) of Appendix I) rendered on account of a claim under an eligible crop insurance contract, less any recovery or salvage by the Company.

“Underwriting” means the determination by the Company that all terms and conditions of eligibility and coverage have been met to qualify the policy as an eligible crop insurance contract. The Company can fulfill this requirement through automated 9 DB04/763432.0030/2554262.1 WP08 CLEAN VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

processing system tests designed to confirm underwriting requirements. An individual is not required to review each application or policy personally. The Company and its service providers shall not permit agents, agent employees, company sales supervisors, or any relative to be involved in the acceptance and verification of underwriting data relating to eligibility and coverage for an eligible crop insurance contract written by such person.

“Underwriting Capacity Manager” (UCM) means an FCIC system that monitors the amount of insurance authorized to be insured or reinsured, and accepts or rejects the application of an eligible producer based on the availability of such amount of insurance, if limits have been placed by Federal legislation or FCIC on the amount of insurance authorized to be insured or reinsured.

“Underwriting gain” means the amount by which the Company’s share of retained net book premium exceeds its share of retained ultimate net losses.

“Underwriting loss” means the amount by which the Company’s share of retained ultimate net losses exceeds its share of retained net book premium.

[Note: Duplicates definition of same term.]“Verification” means the process of providing reasonable assurance that the information submitted is true and accurate through independent third parties or independent documentation in accordance with procedures. “Written Agreement” means the type of document specified in section 1. of the Common Crop Insurance Policy Basic Provisions.

“Yield based plan of insurance” means those plans of insurance that require an actual production history data base.

SECTION II. REINSURANCE

(a) General Terms

(1) For the Company to receive reinsurance, A&O subsidy, CAT LAE, and risk subsidy under this Agreement, an insurance contract must qualify as an eligible crop insurance contract, except as otherwise specified in this Agreement.

(2) Notwithstanding paragraph (3), applications for eligible crop insurance contracts that are rejected by the UCM, as applicable, will not be eligible for reinsurance, A&O subsidy, CAT LAE, or risk subsidy.

(3) Except as specified below, the Company must offer and market all plans of insurance for all crops in any State where actuarial documents are available in which it writes an eligible crop insurance contract and must accept and approve applications from all eligible producers. The Company may not cancel an eligible crop insurance contract held by a policyholder so long as the policyholder remains an eligible producer and the Company continues to write eligible crop insurance contracts within the State, except 10 DB04/763432.0030/2554262.1 WP08 CLEAN VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

as authorized by FCIC. The Company is not required to offer such plans of insurance as may be approved by FCIC under the authority of section 508(h) of the Act. (7 U.S.C. § 1508(h)) However, if the Company chooses to offer any such plan, it must offer the plan in all approved states in which it writes an eligible crop insurance contract where such plan is made available and it must comply with all provisions of this paragraph as to such plan.

(4) In exchange for the reinsurance premiums ceded by the Company pursuant to this Agreement, FCIC will provide the Company with reinsurance in accordance with the provisions of this Agreement.

(5) A Company and its affiliates are prohibited from providing a rebate except as authorized in section 508(a)(9)(B) of the Act (7 U.S.C. § 1508(a)(9)(B)).

(6) A violation of paragraph (5) will result in the denial of reinsurance, A&O subsidy, CAT LAE, and risk subsidy, for all eligible crop insurance contracts for which such violation occurred and may subject the person who committed or authorized the violation to administrative sanctions, including disqualification under the Act or applicable regulations.

(7) Only the amount of net book premium authorized by FCIC in the approved Plan of Operations, including any amendments under Appendix II, shall be reinsured and subsidized under this Agreement.

(8) The Company shall have the financial and operational resources, organization, experience, internal controls, and technical skills to meet the requirements, including addressing reasonable risks, associated with the Agreement, including 7 C.F.R. part 400, subpart L, as determined by FCIC.

(A) The Company shall provide information necessary to evaluate compliance with this paragraph as often as required by FCIC.

(B) The Company must provide written notice to FCIC of any anticipated change in its, or its affiliates’, business organization, orperations, or financial condition, if such change:

(i) Is at variance with the Company’s Plan of Operations; or

(ii) Could affect materially the Company’s ability to perform under the Agreement.

(C) If any change referenced in subparagraph (B) exists, whether FCIC learns of the change by notice from the Company or otherwise:

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(i) FCIC may require the Company to amend its Plan of Operations; or

(ii) The Company may submit to FCIC in writing a request to amend the Plan of Operations.

(I) The request must be approved by FCIC in writing before the amended Plan of Operations can become a part of this Agreement.

(II) The request will be evaluated in accordance with the review procedures applicable to the original Plan of Operations, except that FCIC will also consider whether FCIC’s risk is materially increased.

(III) FCIC will not approve a request to amend the Plan of Operations if such amendment would materially increase the risk of loss to FCIC unless FCIC, at its sole discretion, determines that the amendment arises from an action of FCIC or U.S. Department of Agriculture that substantially increases the risk of underwriting loss on eligible crop insurance contracts written by the Company.

(IV) Changes to eligible crop insurance contracts made in accordance with the terms of such contract are not a basis for an amendment to the Plan of Operations.

(D) If at any time during the reinsurance year FCIC determines that the Company is not in compliance with the requirements of this paragraph or FCIC learns that the Company may be in substantial risk for failure to comply with the requirements of this paragraph, the Company must take corrective actions acceptable to FCIC in accordance with section IV.(h)(4), or be subject to the remedies provided for in this Agreement.

(9) The Company must demonstrate a satisfactory performance record to obtain an Agreement and continue to hold an Agreement for the reinsurance year. The following will be reviewed to determine whether there is a satisfactory performance record:

(A) In the most recent five reinsurance years, the Company and service providers must demonstrate:

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(i) There is substantial conformity with the requirements of this Agreement, the regulations and procedures of FCIC as applicable;

(ii) Any material deficiency was caused by circumstances beyond the Company’s control, and that, as soon as the Company discovered the deficiency, the Company took timely and appropriate corrective action;

(iii) There was no material misconduct on the part of the Company or its service providers; and

(iv) To the satisfaction of FCIC, any other mitigating factors that would prove, notwithstanding any identified deficiency, the Company has a satisfactory performance record;

(B) Whether the Company can, to the satisfaction of FCIC, demonstrate the ability to comply with the requirements of paragraph (8);

(C) Whether the Company can demonstrate the ability to fulfill the requirements under this Agreement under various risk assessment scenarios, including but not limited to significant nationwide losses, the loss or failure of a service provider, the threats and risks outlined in section VI. of Appendix II, or other risks as identified by FCIC; and

(D) Whether FCIC or a State has identified any material deficiencies that may raise questions or concerns regarding the Company’s ability to meet the requirements of this Agreement.

(10) If the Company previously has not been an AIP, the Company and its service providers must demonstrate to the satisfaction of FCIC that it can achieve and maintain a satisfactory performance record consistent with paragraph (9).

(11) Failure to meet the conditions stated in paragraphs (8), (9), or (10), may subject the Company to appropriate remedies in this Agreement, including but not limited to denial of an Agreement, suspension of the Agreement or a reduction in the net book premium the Company is authorized to write.

(12) Unless otherwise specifically approved by FCIC in advance in writing, the Company may only delegate its authority or control over the designation of eligible crop insurance contracts to reinsurance funds to its managing general agent and the Company must include the delegation in its Plan of Operation. 13 DB04/763432.0030/2554262.1 WP08 CLEAN VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

(13) Failure of the Company to comply with the provisions of this Agreement, including timely submission of data and reports, does not excuse or delay the Company’s requirement to pay any amount due to FCIC by the dates specified herein.

(14) Neither the Company nor its affiliates shall assess service fees or additional charges on eligible crop insurance contracts reinsured and subsidized under this Agreement except as authorized by the Act or approved by FCIC in writing.

(b) Reinsurance

(1) The Company, in accordance with its Plan of Operations, may designate an eligible crop insurance contract to the Assigned Risk Fund. Any eligible crop insurance contract not specifically designated by the Company to the Assigned Risk Fund will automatically be assigned to the Commercial Fund by State.

(2) Unless otherwise specified in Appendix III, if the Company elects to designate eligible crop insurance contracts to the Assigned Risk Fund, it must do so not later than the transaction cutoff date for the week containing the 30th calendar day after the sales closing date for the eligible crop insurance contract, except:

(A) In the case of written agreements requiring annual FCIC approval or for the initial year of an eligible crop insurance contract associated with a written agreement only (excluding written agreements specified in Appendix III), not later than the transaction cutoff date for the week containing the 30th calendar day after FCIC approval;

(B) For the initial year of application for any agricultural commodity without a fixed sales closing date, the later of the transaction cutoff date for the week containing the 30th calendar day after the eligible producers signature date on the application, or the transaction cutoff date for the week containing the 30th calendar day prior to the cancellation date; and

(C) For the subsequent year of insurance for any agricultural commodity without a fixed sales closing date, the transaction cutoff date for the week containing the 30th calendar day prior to the cancellation date for the previous year.

[Note: Paragraphs 3 through 9 have been deleted. NCIS proposes continued use of the Assigned Risk Fund under existing terms and conditions. NCIS also has made alternative proposals for the Commercial Fund and elimination of net book quota share in response to the first draft.] 14 DB04/763432.0030/2554262.1 WP08 CLEAN VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

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(D)

(3) Contingency Fund

(A) The Contingency Fund, which is part of the insurance fund authorized under section 516(c) of the Act (7 U.S.C. § 1516(c)), is used to offset expenses incurred by FCIC to administer a Company’s book of business in the event of Company supervision, rehabilitation, insolvency or operational deficiency, or an equivalent event, as determined by FCIC, or the Agreement is terminated for cause.

(B) Any amounts owed to FCIC by the Company in accordance with sections II.(b)(__), IV.(b)(9), IV.(b)(12), IV.(h), and IV.(j)(4) will be accounted for in the Contingency Fund.

(4) The Company may reinsure its liability for ultimate net losses remaining after all retentions, designations, and assignments under this Agreement. Insurance companies that qualify as PICs are not precluded from entering into reinsurance arrangements with the Company. The Company shall inform FCIC in writing of all reinsurance arrangements that relate to eligible crop insurance contracts. Reinsurance arrangements used to meet the Company’s obligations under this Agreement, unless otherwise specified by FCIC in writing, must meet the definition of, and the standards applicable to:

(A) Reinsurance in the National Association of Insurance Commissioners (NAIC) Credit for Reinsurance Model law, or a NAIC model successor law;

(B) Standards for reinsurance under the NAIC Accounting Practices and Procedures Manual including any revisions or updates; and

(C) Any other relevant standards developed by the NAIC for credit for reinsurance.

(5) In addition to other remedies provided in this Agreement, FCIC may, at its sole discretion, offer additional reinsurance beyond what is otherwise provided in this Agreement as follows:

(A) Whenever the Company reports an amount of net book premium greater than FCIC authorized as the maximum reinsurable net book premium, FCIC may cause the net underwriting gain or loss for all States, as determined in paragraph (__), payable to or by the Company to be reduced according to the ratio of the excess net book premium to the total reported net book premium. The excess will then be reinsured under this Agreement. The Company agrees 16 DB04/763432.0030/2554262.1 WP08 CLEAN VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

to pay FCIC an additional reinsurance premium equal to 5 percent of the excess net book premium whenever this provision applies.

(B) The reinsurance premium collected pursuant to this paragraph shall be deposited into the Contingency Fund.

SECTION III. SUBSIDIES, EXPENSES, FEES, AND PAYMENTS

(a) Subsidies and Expenses

(1) Risk subsidy shall be determined in accordance with the Act and will be provided on behalf of policyholders to the Company on the monthly settlement report specified in paragraph (2) below.

(2) A & O Subsidy

(A) Notwithstanding the provisions of this section, under no circumstances will A&O subsidy or CAT LAE be paid in excess of the amount authorized by statute.

(B) A&O subsidy and CAT LAE for eligible crop insurance contracts will be determined and paid as set forth below.

(i) A&O subsidy and CAT LAE will be paid to the Company beginning with the October monthly settlement report for the reinsurance year, after the Company submits, and FCIC accepts, acreage reports, or other similar reports (e.g., preliminary tonnage report for eligible raisin crop insurance contracts, or inventory value reports for nursery and clam crop insurance contracts, annual farm report for eligible AGR crop insurance contracts). [For the 2012 and succeeding reinsurance years, this provision will read “After the Company submits, and FCIC accepts, acreage reports, or other similar reports (e.g., preliminary tonnage report for eligible raisin crop insurance contracts, or inventory value reports for nursery and clam crop insurance contracts, annual farm report for eligible AGR crop insurance contracts), the A&O subsidy and CAT LAE

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will be paid to the Company on the October monthly settlement report following the end of the reinsurance year.”]

[Note: NCIS believes use of “adjusted net book premium” (instead of premium used to define loss ratio) and reference prices is illegal because RMA has no authority under the Act to make such changes in calculating A&O. Further, NCIS has prepared a paper identifying other fundamental flaws in FCIC’s approach to A&O.]

(I)

(ii) For any eligible crop insurance contract with CAT coverage, the A&O subsidy is zero percent of net book premium.

(iii) Except as otherwise provided by law, for eligible crop insurance contracts with additional coverage that provide coverage under an area-based, or similar plan of insurance the A&O subsidy will be:

(I) Except as provided in subclause (II), 12.0 percent of net book premium for such eligible crop insurance contracts.

(II) For area-based or similar plans of insurance that were not widely available as of the 2008 reinsurance year,

(aa) 20.1percent of net book premium for such eligible crop insurance contracts with coverage levels less than 80 percent;

(bb) 17.8 percent of net book premium for such eligible crop insurance contracts with coverage levels at 80 percent; and

(cc) 17.1 percent of net book premium for such eligible crop insurance contracts with coverage levels at 85 percent or higher.

(iv) Subject to clause (vi), for additional coverage eligible crop insurance contracts, except those referenced in clause (iii), that provide revenue coverage that can increase liability whenever the market price at the time of harvest exceeds

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the market price at the time of planting the A&O subsidy will be:

(I) 18.5 percent of net book premium for such eligible crop insurance contracts with coverage levels less than 80 percent; and

(II) 16.4 percent of net book premium for such eligible crop insurance contracts with coverage levels at 80 percent; and

(III) 15.8 percentof net book premium for attributed to such eligible crop insurance contracts with coverage levels at 85 percent or higher.

(v) Subject to clause (vi), for all other eligible crop insurance contracts the A&O subsidy will be:

(I) 21.9 percent of net book premium for such eligible crop insurance contracts with coverage levels less than 80 percent; and

(II) 19.4 percent of net book premium for such eligible crop insurance contracts with coverage levels at 80 percent; and

(III) 18.7 percent of net book premium for such eligible crop insurance contracts with coverage levels at 85 percent or higher.

(vi) For states in which the loss ratio is greater than 120 percent of the total net book premium written in the state by all AIPs, add 1.15 percentage points to the A&O subsidy rates established in clauses (iv) and (v).

(vii) For purposes of determining the loss ratio within this section, any adjustment to increase or decrease the loss ratio for a state will be made on the monthly settlement report for the applicable reinsurance year, and end subject to the limitations for submitting data through automated systems as provided in section IV.(b)(3).

(C) In addition to other provisions of this Agreement, the amount of A&O subsidy may be adjusted to a level that FCIC determines to be equitable if issuing or servicing eligible crop insurance contracts involves expenses that vary significantly from the basis used to determine the A&O subsidy under this section. 19 DB04/763432.0030/2554262.1 WP08 CLEAN VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

[Note: Subparagraphs (D) and (E) are deleted because the questions raised in the discussion paper concerning the “soft” cap on agent commissions are yet to be answered.]

(D) The SSNs of all agents of record and loss adjusters must be provided to FCIC in accordance with procedures. If the applicable SSN is not provided for an eligible crop insurance contract, the Company will not receive any reinsurance for that eligible crop insurance contract until the appropriate SSN is provided.

(3) CAT Loss Adjustment Expense

FCIC will pay to the Company on the monthly settlement report an amount equal to 6.0 percent of net book premium for CAT eligible crop insurance contracts.

(b) Administrative Fees

The Company shall remit to FCIC all administrative fees collected in accordance with the applicable eligible crop insurance contract and the following:

(1) In the event the policyholder is a limited resource farmer as defined in the regulations, the Company shall submit the required information to FCIC and FCIC shall waive the applicable fees on the monthly settlement report.

(2) The Company must terminate eligible crop insurance contracts if administrative fees are not paid by the date specified in the applicable eligible crop insurance contract for CAT coverage and report such termination to FCIC in accordance with procedures.

(3) FCIC will perform debt collection activities for CAT administrative fees that have not been timely paid.

(c) Payments

(1) All payments due FCIC from the Company will be netted on the monthly and annual settlement reports with amounts due the Company from FCIC. FCIC will remit amounts due the Company by electronic funds transfer (EFT) on or before the FCIC payment date. Any amounts due FCIC or the Company that are not timely remitted are subject to the interest rate provisions contained in section IV.(c), with such interest accruing from the date such payment was due to the date of payment.

(2) In the event that FCIC erroneously rejects data that was correctly submitted by the Company and a payment would be due to the Company if the data had not been rejected, the Company shall be entitled to interest accrued on this amount for the period of such delay, at the rate provided in section IV.(c)(1). 20 DB04/763432.0030/2554262.1 WP08 CLEAN VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

(3) Any funds paid by the Company to FCIC in the compromise and settlement of any dispute between FCIC and the Company in an amount less than FCIC claimed was due will be included on the monthly settlement report without regard to the provisions of sections II.(B).

(4) Notwithstanding any other provision of this Agreement, if a review or examination reveals that the Company or its affiliates have committed a material error or omission or materially failed to comply with a term of the Act, this Agreement, regulations, or procedures, FCIC must provide written notice to the Company within 3 years of the end of the insurance period when the error, omission or failure occurred, if the Company owes a debt to FCIC, unless the error, omission or failure was willful or intentional. The failure to provide timely notice required herein shall only relieve the Company from liability for the debt owed and not for other consequences of the error, omission or failure that address other obligations of the Company, including maintaining a satisfactory performance record. Written notice to the Company under this paragraph must:

(A) Describe the failure regarding compliance with a specified term of the Act, this Agreement, the regulations, or procedures;

(B) State that such failure results in an amount being owed to FCIC;

(C) Include the crop year and eligible crop insurance contract number(s) for which such failure occurred; and

(D) Provide sufficient detail to put the Company on general notice of the type of error, omission or failure alleged (such as failure to properly calculate the approved yield or failure to conduct a pre- acceptance inspection, etc.).

(5) The Company must provide written notice, in a form similar to the notice in paragraph (4), to FCIC of any claim that funds may be owed from FCIC to the Company within 3 years after annual settlement of the reinsurance year in which such funds are claimed to be owed. Failure to provide such notice shall relieve FCIC of the obligation to repay any amount that would be owed to the Company. If an investigation by FCIC determines that funds may be owed by FCIC to the Company, written notice does not need to be provided.

SECTION IV. GENERAL PROVISIONS

(a) Collection of Information and Data

(1) The Company is required to collect and provide to FCIC all SSNs or EINs that are required to be submitted by the policyholder under the eligible 21 DB04/763432.0030/2554262.1 WP08 CLEAN VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

crop insurance contract, and the SSNs of all employees and affiliates as required by procedures. SSNs or EINs shall be protected, as prescribed in the Privacy Act of 1974 (5 U.S.C. § 552a), by the Company and all of its affiliates with access to such information. [Note: Reference to FISMA has been moved to IV. (a) (4).]

(2) In accordance with section 502(c) of the Act (7 U.S.C. § 1502(c)), neither the Company, nor its personnel, or contractors, or affiliates may disclose to the public any information provided by the policyholder unless such disclosure is otherwise required by Federal law.

(3) All persons who have access to Protected Information or Personally Identifiable Information, including but not limited to, personnel, contractors, service providers and affiliates of the Company, must sign a non-disclosure statement, in accordance with reporting and certification requirements contained in section XV of Appendix I.

(4) The Company and all of its affiliates shall secure all Protected Information and records by developing,, implementing, and maintaining information controls and systems in a manner consistent with the Federal Information Security Management Act (FISMA) (44 U.S.C. § 3541) or any Federal law covering Federal crop insurance information. The Company shall make available audit and assessments examining its Information Technology security, both internal and external, to FCIC upon request.

(5) The Company shall report any loss of Protected Information or Personally Identifiable Information to FCIC within one hour of determining a loss of such information.

(b) Reports

(1) The Company is required to collect, maintain, and submit to FCIC data that FCIC reasonably determines is necessary to the operation of the Federal crop insurance program. Data the Company is required to submit to FCIC must be accurate, detailed and submitted to FCIC in accordance with Appendix III. Data to be submitted includes:

(A) Information each policyholder is required to report under eligible crop insurance contracts of the Company reinsured under this Agreement as specified in procedures, and

(B) Information required herein under this SRA and its Appendicies.

(2) Unless specifically approved by FCIC in writing, FCIC will reject any eligible crop insurance contract first submitted by the Company after the annual settlement. 22 DB04/763432.0030/2554262.1 WP08 CLEAN VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

(3) Producer premiums and administrative fees collected by the Company must be reported to FCIC in accordance with Appendix III.

(4) [Note: Based on the proposed text of (1), this provision is redundant.]In addition to any other reporting requirement, the Company must report the following information regarding each eligible crop insurance contract and have such information be accepted by FCIC not later than the applicable date specified in paragraph (5):

(A) All names, SSNs, and EINs the policyholder is required to report under the eligible crop insurance contract;

(B) The agricultural commodity to be insured under the eligible crop insurance contract; and

(C) The plan of insurance and coverage level, including the price election, elected by the eligible producer.

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(5) Information specified in paragraph (4) must be accepted by FCIC not later than:

(A) In cases of written agreements requiring annual FCIC approval or for the initial year of a written agreement (unless otherwise specified in Appendix III), not later than the transaction cutoff date for the week containing the 30th calendar day after FCIC approval;

(B) For any renewal or multi-year written agreement (unless otherwise specified in Appendix III), the transaction cutoff date for the week containing the 30th calendar day after the sales closing date for the eligible crop insurance contract;

(C) For any agricultural commodity without a fixed sales closing date:

(i) For the initial year of application, the later of the transaction cutoff date for the week containing the 30th calendar day after the eligible producers signature date, or the transaction cutoff date for the week containing the 30th calendar day after the cancellation date;

(ii) For any subsequent year of insurance, the transaction cutoff date for the week containing the 30th calendar day after the cancellation date; and,

(D) For all other eligible crop insurance contracts not covered in subparagraphs (A) through (C), the transaction cutoff date for the week including the 30th calendar day after the sales closing date for the eligible crop insurance contract.

(6) The A&O subsidy applicable to the eligible crop insurance contract determined in accordance with section III.(a)(2) will be reduced whenever the information required by paragraph (4) has not been accepted by FCIC or such information is revised after the deadlines set forth in paragraph (5).

(A) The A&O subsidy for the eligible crop insurance contract will be reduced by:

(i) 1 percentage point if the required information is first accepted or revised after the deadline set forth in paragraph (5),but prior to the weekly transaction cut-off date including the 30th calendar day following the deadline set forth in paragraph (5); or

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(ii) 2 percentage points if the required information is first accepted or revised after the weekly transaction cut-off date including the 30th calendar day following the deadline set forth in paragraph (5), , but prior to the weekly transaction cut-off date for the week including the 60th calendar day following the deadline set forth in paragraph (5); or

(iii) 3 percentage points if the required information is first accepted or revised after the weekly transaction cut-off date including the 60th calendar day following the deadline set forth in paragraph (5).

(B) The sanctions under this paragraph may be reduced or waived if the delay is caused in whole or in part by FCIC.Any amount collected under this paragraph will be placed in the Contingency Fund.

(C) If the eligible crop insurance contract or procedures allow the policyholder to make an election of, or change to, any information required to be reported under paragraph (4) after the deadline set forth in paragraph (5), the A&O subsidy reduction in paragraph (6)(A)(i) will not apply for that eligible crop insurance contract until the weekly transaction cutoff date including 30 days after the date the policyholder is required to make such designation, and the dates in paragraph (6)(A)(ii) and (iii) are adjusted accordingly.

(7) The Summary of Coverage and billing statement provided to the policyholder shall prominently display each of the following:

(A) The total premium calculated by adding subparagraphs (B) and (C) below;

(B) The risk subsidyand A&O subsidy paid by FCIC to the Company on behalf of the policyholder;

(C) The amount of premium and any administrative fees due the Company from the policyholder; and

(D) When the A&O subsidy amount is contingent on the loss ratio in the state, the A&O subsidy displayed pursuant to clause (B) shall be the applicable amount in Section III (a)(2)(B)(iv) or (v), but shall contain an asterisk and a footnote stating “*Note: This amount may increase by 1.15 percent of net book premium if the loss ratio in the state exceeds 1.20. However, the amount of premium the producer must pay will not change.”. Alternatively a

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dollar amount equivalent to 1.15 percent of net book premium may be substituted in this footnote.

[Note: (D) is based on IS – 08 – 2009. Its inclusion means that all required billing statement items are set forth in one location.]

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(c) Interest

(1) Any interest that FCIC is required to pay the Company under the terms of this Agreement will be paid in accordance with the interest provisions of the Contract Disputes Act (41 U.S.C. §§ 601 et seq.).

(2) Any interest that the Company is required to pay FCIC under the terms of this Agreement will be paid at a simple interest rate equal to the 13 week rate on Treasury bills (at the date when payment is due plus 3 percentage points per annum.

(3) The Company will repay with interest any amount paid to the Company by FCIC that FCIC or the Company subsequently determines was not due.

(4) FCIC will repay with interest any amount paid by the Company to FCIC, which FCIC subsequently determines was not due.

(5) Interest on amounts determined not to be due will begin to accrue on the 31st day after the date that:

(A) In the case of amounts owed to the Company, a written notification stating the amount claimed to be owed is provided to FCIC by the Company, as applicable, and end on the date the amount is paid in full; or

(B) In the case of amounts owed to FCIC, the Company receives a final determination from FCIC or other written statement from FCIC that a specific amount is owed, as applicable, and end on the date the overpaid amount is paid in full. Appeal by the Company under this Agreement or 7 C.F.R. § 400.169 does not delay the date by which interest starts to accrue.

(d) Escrow Account

(1) At the Company's request, FCIC will allow the Company to establish an escrow account in the name of FCIC at a bank designated by the Company, and approved by FCIC, to reimburse the Company for payment of indemnities, prevented planting payments or replant payments to policyholders by the Company. The Company's bank must pledge collateral as required by 31 C.F.R. § 202 in the amount determined by FCIC.

(2) When an escrow account has been established, the Company may request FCIC to fund the escrow account after the Company has drafted a check or scheduled an EFT transaction to pay the indemnity, prevented planting payment, or replant payment to a policyholder. A request to fund the escrow account shall be submitted in accordance with 27 DB04/763432.0030/2554262.1 WP08 CLEAN VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

Appendix III. A request submitted to FCIC shall be deemed certified by an authorized officer or authorized employee of the Company that the information in the escrow account funding request is correct and accurate.

(3) Any Company that elects not to utilize escrow funding will be reimbursed for paid losses validated and accepted on the monthly settlement report.

(4) The Company’s bank may only draw funds from the escrow account when the instrument or document issued as payment of the indemnity, prevented planting payment or replant payment has cleared the Company’s bank account.

(5) If there is a shortfall of funds in the escrow account, it is the Company’s responsibility to deposit funds to cover any shortages.

(e) Supplemental Insurance

(1) The Company shall not sell a contract of insurance or similar instrument, which is written in conjunction with an eligible crop insurance contract and not reinsured by FCIC, unless the Company has complied with the requirements of 7 C.F.R. § 400.713.

(2) FCIC will not provide reinsurance for an eligible crop insurance contract if the Company sold a contract of insurance or instrument described in paragraph (1) that FCIC determines to have shifted risk to, or increases the risk of, such eligible crop insurance contract reinsured under this Agreement, or if the Company administers such insurance or instrument in a manner inconsistent with information submitted in accordance with 7 C.F.R. § 400.713.

(3) The Company must maintain, and make available at the request of FCIC, the underwriting information pertaining to a contract of insurance or instrument described in paragraph (1), including the policy number and all SSNs and EINs related to the eligible crop insurance contract.

(4) If the terms of a contract of insurance or instrument described in paragraph (1) become inconsistent with the terms of the eligible crop insurance contract causing payments to be made under the eligible crop insurance contract that would not otherwise be payable, reinsurance will be denied.

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(f) Insurance Operations

(1) General

(A) The Company must verify yields and other information used to establish insurance guarantees and indemnity payments in accordance with the regulations and procedures.

(B) The Company must use contracts, standards, procedures, methods, and instructions as authorized by FCIC in the sale and service of eligible crop insurance contracts.

(C) The Company must comply with standards and procedures to create forms used in the sales and service of any eligible crop insurance contract.

(2) Plan of Operations

(A) The Company’s complete Plan of Operations must be submitted to FCIC by April 1 preceding the reinsurance year, unless otherwise authorized by FCIC. The Plan of Operations must meet the requirements of this Agreement, including the format and all requirements specified in Appendix II, to be considered a complete Plan of Operations.

(B) The Plan of Operations contains integral terms to this Agreement so no Agreement exists for a reinsurance year until the Plan of Operation has been approved by FCIC. Once approved by FCIC, the Company’s Plan of Operations becomes an Appendix to the Agreement.

(C) If the Plan of Operations is not approved by FCIC by the July 1 start of the reinsurance year:

(i) FCIC shall, at its sole discretion, provide the Company with written notice:

(I) Agreeing to reinsure and pay CAT LAE, A&O subsidy and risk subsidy for eligible crop insurance contracts that are renewed or sold by or on behalf of the Company while FCIC continues its evaluation of the Plan of Operations: or

(II) Directing the Company and any of its service providers and agents to cease the renewal or sale of eligible crop insurance contracts until FCIC

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determines whether to approve or disapprove the Plan of Operations.

(ii) Any eligible crop insurance contract sold or renewed after FCIC has provided written notice that the Company must cease the renewal or sale of eligible crop insurance contracts until FCIC determines whether to approve or disapprove the Plan of Operations will not be provided reinsurance, A&O subsidy, CAT LAE, or risk subsidy.

(iii) If FCIC authorizes the continued renewal or sale of eligible crop insurance contracts by or on behalf of the Company while FCIC completes its evaluation of the Plan of Operations and:

(I) Approves the Plan of Operations, the renewed and sold eligible crop insurance contracts will be reinsured under the newly approved Plan of Operations; or

(II) Disapproves the Plan of Operations, the eligible crop insurance contracts renewed or sold during the evaluation period will be transferred to FCIC and will be processed in accordance with section IX of Appendix I.

(D) The Company shall be in compliance with the Freedom to E-File Act and section 508 of the Rehabilitation Act. The Company must file its plan for meeting the requirement of these statutory provisions, in accordance with procedures, with the Plan of Operations, as specified in Appendix II.

(g) Access to Records and Operations

(1) Upon written request, unless otherwise authorized by the FCIC Manager, the Company must provide FCIC reasonable access to its offices, personnel, and all records that pertain to the business conducted under, or the requirements contained in, this Agreement, including reasonable access to records on the operation of the Company, during normal business hours.

(2) The Company shall enter into and enforce agreements to ensure that its affiliates provide FCIC and the Company with reasonable access to its affiliates’ offices, personnel, and all records that pertain to the business conducted under, or the requirements contained in, this Agreement, including reasonable access to records on the operation of such affiliates during normal business hours. 30 DB04/763432.0030/2554262.1 WP08 CLEAN VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

(3) The Company must designate in its Plan of Operations where the records pertaining to the business conducted under this Agreement are located. In the case of electronic records, the location of computers or servers may be deemed the designated location.

(4) Records described in this subsection must be retained until 3 years after the annual settlement date for the applicable reinsurance year or until 3 years after the end of the insurance period of the specific eligible crop insurance contract, whichever is later. [Note: This language comes from the current SRA and remains appropriate.]

(5) FCIC may require the Company and its affiliates to retain certain specified records for a longer period than in paragraph (4) if it so notifies the Company in writing at any time before the expiration of the applicable 3- year period. If the applicable 3-year period has expired and the Company or its affiliate still has the records in their possession, FCIC can require that such records be retained for a longer period by providing written notice.

(6) Notwithstanding paragraph (4), records regarding an unsatisfied debt of a policyholder must be retained until the debt is satisfied or is discharged through bankruptcy proceedings.

(7) For the purpose of this subsection the term “FCIC” includes all U.S. Government agencies including but not limited to USDA Office of Inspector General, the Government Accountability Office, and the Department of Labor.

(h) Compliance and Corrective Action

(1) The Company and its affiliates must comply with the provisions of this Agreement, as applicable. The Company is solely responsible for the conduct and performance of its personnel and affiliates with respect to the obligations imposed by this Agreement and the procedures. Liability for damages incurred, to the extent it is caused by an error or omission or failure to comply with this Agreement or the procedures, is the sole responsibility of the Company. The assumption of liability under this section is only for the purpose of this Agreement and may not be relied upon by any person or entity not a part to this Agreement for any purpose.

(2) In addition to paragraph (1), the Company and its affiliates must comply with the procedures, and the applicable laws of the States in which the Company is conducting business under this Agreement, unless preempted in accordance with section IV.(o).

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(3) The Company must fully cooperate with FCIC in the review or examination of the Company or its affiliates regarding compliance with the requirements of the Agreement and procedures. The Company will

include in its agreements with its affiliates provisions that ensure that such affiliates agree to cooperate and assist FCIC in the reviews and examinations conducted in accordance with this Agreement.

(4) In addition to any other remedies available under this Agreement, if FCIC finds that the Company has not complied with a provision of this Agreement, and the Company has not taken appropriate steps to correct the reported act of non-compliance, FCIC may, at its sole discretion, require that the Company take corrective action within 45 days of the date of such written demand. The Company must provide FCIC with satisfactory documentary evidence of the corrective action taken to address the reported act of non-compliance.

(5) If a State makes a determination that the Company or its affiliates are not in compliance with state law and FCIC determines such non-compliance is material to the Company’s obligations under this Agreement, and all appeals have been exhausted, FCIC shall take remedial actions, which may include suspension or termination of this Agreement in accordance with section IV.(i) and (j), denial of reinsurance, in whole or in part, depending on the materiality or severity of the non-compliance.

(6) In addition to any other remedies in this Agreement, if FCIC determines that the Company or its affiliate willfully violated the Agreement or the procedures, FCIC reserves the right to deny reinsurance for any insurance contract that is sold or serviced in violation of the terms of this Agreement or procedures.

(7) Whenever a failure to comply with a provision of this Agreement or procedures by the Company or its service providers, agents, and loss adjusters materially affects the existence or amount of the indemnity, prevented planting payment, replant payment or premium for an eligible crop insurance contract (including but not limited to incorrect APH calculations; improper adjustment of losses; sales agents or sales supervisors involved in the adjustment of losses; failure to verify eligibility for insurance, acreage planted, or prevented from planting, insurable shares, insurable causes of loss, or unit division) and FCIC is:

(A) Able to determine the correct amount of indemnity, prevented planting payment, replant payment, or premium, FCIC, except as provided in paragraph (8)(A), may deny A&O subsidy, CAT LAE, and risk subsidy or reduce the A&O subsidy or CAT LAE for the eligible crop insurance contract based on the severity of the failure, and require the Company: 32 DB04/763432.0030/2554262.1 WP08 CLEAN VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

33 DB04/763432.0030/2554262.1 WP08 CLEAN VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

(i) To report to FCIC through PASS the correct amount of indemnity, prevented planting payment, replant payment, and premium;

(ii) To pay to the policyholder any amount of underpaid indemnity, prevented planting payment, replant payment, or overpaid premium; and

(iii) To pay to FCIC any overpaid indemnity, prevented planting payment, replant payment, or underpaid premium and any subsidy that exceeds the amount the Company or policyholder was entitled to receive.

(B) Unable to determine the correct amount of indemnity, prevented planting payment, replant payment, or premium that should have been paid, FCIC may deny reinsurance, in whole or in part, based on the severity of the failure, unless the Company can provide documentary evidence satisfactory to FCIC that shows the correct amount of the indemnity, prevented planting payment, replant payment, or premium.

(8) The Company provides valuable program delivery services for which payment is made in the form of A&O subsidy and CAT LAE. FCIC and the Company agree that FCIC is damaged by a material failure of the Company or its service providers, agents, and loss adjusters to provide services or to comply with a provision of this Agreement or procedures, and that the value of such service or failure to comply is difficult to determine because the damages are uncertain and the amount of service or failure to comply is difficult to quantify. The amounts stated below shall be used as reasonable estimates of the value. In the event there is a pattern or practice of failing to comply with the Agreement or procedures and FCIC has determined the Company or its service providers, agents, and loss adjusters have failed to provide services or to comply with a provision of this Agreement or procedures and such failure has occurred:

(A) During the claims process (such as loss adjustment, quality control reviews, verification of applicable information, etc.), the Company agrees to pay FCIC an amount up to 5 percent of the net book premium on all crop insurance contracts affected by the failure based on the materiality or severity of the failure;

(B) During the sales and service of the crop insurance contract, excluding the claims process contained in subparagraph A., the Company agrees to pay FCIC an amount up to 5 percent of the net book premium on all crop insurance contracts affected by the failure based on the materiality or severity of the failure;

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[Note: With A&O on some policies, in particular area plans, less than 15% of net book premium, the liquidated damage amount must be below A&O.]

(C) FCIC may impose the remedies in both subparagraphs (A) and (B), if applicable (however, both remedies may not be imposed for the same conduct by the same person); and

(D) If a pattern or practice under this paragraph also involves overpaid indemnities that may be collected under paragraph (7)(A), any reduction in A&O subsidies and CAT LAE will be imposed under this paragraph, not paragraph (7)(A).

(9) Failure of the Company or its affiliates to cease or desist any activity or to take a specific action, as required by FCIC in writing, will subject the Company or its affiliates to the sanctions in section 515(h) of the Act (7 U.S.C. 1515(h)).

(10) Any payment due from, or paid by, the Company under this subsection shall be in addition, and without prejudice, to any other rights of FCIC, or the United States. FCIC may, at its sole discretion, waive, reduce or delay repayment if such actions are needed for continued delivery of the program.

(11) Failure of the Company to make payment in accordance with the provisions of this Agreement, or with provisions of any separate written agreement to make such payment between the Company and FCIC, shall subject the Company to the remedies available under this Agreement.

(12) Nothing in this subsection prevents FCIC from suspending or terminating this Agreement in accordance with section IV.(i) and (j).

(13) Any A&O subsidies and CAT LAE collected under this subsection will be placed in the Contingency Fund.

(14) Nothing in this Agreement precludes the government from taking any actions authorized by law relating to fraud, waste, or abuse.

(i) Suspension

In addition to the other remedies available in this Agreement, FCIC may suspend this Agreement for cause due to a material breach or failure to perform or comply with obligations under this Agreement. If this Agreement is suspended for cause:

(1) Except as provided in paragraph (3), the suspension will remain in effect until FCIC determines that the error or omission has been corrected and that steps have been taken to prevent its occurrence.

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(2) While suspended, the Company shall not, as determined by FCIC:

(A) Sell, or authorize to be sold, any new crop insurance contracts;

(B) Renew, or authorize the renewal of, existing eligible crop insurance contracts; or

(C) Service any eligible crop insurance contracts in effect at the time of the suspension (A&O subsidy and CAT LAE will continue to be paid only for those eligible crop insurance contracts that FCIC requires to be serviced).

(3) If the eligible crop insurance contracts are not serviced as required by paragraph (2)(C), or errors or omissions are not corrected within the timeframe specified by FCIC, the suspension will remain in effect and this Agreement will automatically terminate at the end of the reinsurance year, or an earlier date if notice of termination is provided by FCIC, and A&O subsidy and CAT LAE will be denied.

(4) Notwithstanding any other provision of this Agreement, during the period of suspension, the Company may submit a request to FCIC for approval by FCIC to not renew some or all of the existing eligible crop insurance contracts. Each request must contain supporting documentation stating the basis for the request and the proposed implementation of the request.

(5) Any eligible crop insurance contract that is sold or renewed if precluded by FCIC, while this Agreement is suspended will not receive reinsurance, A&O subsidy, CAT LAE or risk subsidy for such eligible crop insurance contracts.

(6) Any eligible crop insurance contract not renewed in accordance with this subsection must be canceled in accordance with the terms of the eligible crop insurance contract not later than 15 days before the next applicable cancellation date.

(j) Termination

(1) Notwithstanding any other provision of this Agreement, FCIC may terminate this Agreement for cause due to a material failure to perform or comply with this Agreement or the procedures, or for the convenience of the government.

(2) Termination will be effective on the date specified by FCIC but under no circumstances will it be after the last day of the reinsurance year.

(3) If this Agreement is terminated, FCIC will not provide reinsurance for eligible crop insurance contracts issued or renewed after the date of the

36 DB04/763432.0030/2554262.1 WP08 CLEAN VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

termination. Except as otherwise provided in this Agreement, FCIC will provide reinsurance in accordance with the terms of the Agreement, for eligible crop insurance contracts in effect as of the date of the termination until the next cancellation date for the eligible crop insurance contract.

(4) (4) In addition to any other reductions provided in the Agreement, if this Agreement is terminated by FCIC for cause, the Company shall pay FCIC an amount not greater than 10 percent of the net book premium for all eligible crop insurance contracts in its book of business based on the materiality or severity of the cause. All amounts collected under this paragraph will be placed in the Contingency Fund.

(5) After termination of this Agreement, unless otherwise specified in this Agreement, all of the Company’s eligible crop insurance contracts in its book of business must be cancelled in accordance with the terms of such contract not later than 15 days before the next applicable cancellation date.

(k) Disputes and Appeals

(1) If the Company disputes an action, finding, or decision of FCIC under this Agreement, the Company must seek a final administrative decision regarding such action, finding, or decision in accordance with the provisions of 7 C.F.R. § 400.169 before seeking judicial review.

(2) If the Company seeks a final administrative decision or reconsideration in accordance with 7 C.F.R. § 400.169, FCIC shall, in most cases, issue a fully documented decision within 90 days of the receipt of a notice of dispute accompanied by all information necessary to render a decision. If a decision cannot be issued within 90 days, FCIC will notify the Company within the 90-day period of the reasons why such a decision cannot be issued and when it will be issued.

(l) Agreement Change Date

(1) This is a single year Agreement that ends June 30 of the reinsurance year. The Company can enter into a new Agreement under the terms and conditions that exist as of March 15 preceding the reinsurance year by filing a Plan of Operations and obtaining approval from FCIC.

(2) If Congress enacts legislation on or before June 30 that will affect the terms of the Agreement for the next reinsurance year, the Company may, within 15 days of the date of enactment,:

(A) Withdraw its Plan of Operations; or

(B) Amend its Plan of Operations, according to procedures.

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(m) Funding Contingency

If Congress makes any change in law that will affect the amount of funds authorized to be paid under this Agreement, the affected provisions in this Agreement will be automatically revised to reflect such change in funding. Under no circumstance may a payment be made under this Agreement that is in excess of the amount authorized by law at the time such amount may be owed.

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(n) Previous Obligations

Any obligations continuing under any previous Agreement will remain subject to the terms and conditions of such previous Agreement.

(o) Preemption of State Law

(1) In accordance with section 506(l) of the Act (7 U.S.C. § 1506(l)), all provisions of State or local law that otherwise may apply to this Agreement , or to the Company’s performance hereunder, are preempted, excepting only:

(A) State insurance laws with respect to licensing of agents, financial safety and soundness, and supplemental insurance or other insurance not reinsured by FCIC.

(B) State and local laws and codes with respect to public safety and welfare, including, but not limited to, those concerning building and occupancy; and

(C) State and local laws and codes with respect to employment safety, security, and non-discrimination (except to the extent otherwise preempted by federal law).

(2) The provisions of 7 C.F.R. part 400, subpart P pertaining to preemption of State or local laws or regulations are specifically incorporated herein and made a part hereof.

(3) No assessment for any guarantee funds or similar programs may be computed or levied on the Company by any State for or on account of any premiums payable on eligible crop insurance contracts reinsured under this Agreement.

(4) No State or local regulatory authority, including without limitation a State’s insurance commissioner, department, or comparable public authority, may enforce or seek to enforce any provision of the Act, the regulations, this Agreement, or any procedures, without the prior written consent of FCIC.

(5) Irrespective of any State notice requirements, if a Company elects to discontinue offering a Plan of coverage, coverage on a specific crop, or coverage in a state, the Company is only required to provide 30 days notice to affected policyholders and is not required to pay any renewal commissions to agents.

(p) Discrimination

39 DB04/763432.0030/2554262.1 WP08 CLEAN VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

The Company shall not discriminate against any employee, applicant for employment, insured, applicant for insurance, or potential applicant for insurance because of race, color, national origin, religion, sex, age, disability, marital status, or in retaliation for exercising his or her rights under applicable Federal law. The Company shall be in substantial compliance with all applicable Federal laws prohibiting discrimination.

(q) Set Off

(1) Funds due from the Company may be set off under the provisions of this Agreement or under the provisions of 31 U.S.C. chapter 37.

(2) Any amount due the Company under this Agreement is not subject to any lien, attachment, garnishment, or any other similar process prior to that amount being paid under this Agreement, unless such lien, attachment, or garnishment arises under title 26 of the United States Code.

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(3) Set off as provided in this section will not deprive the Company of any right it might otherwise have to contest the indebtedness involved in the set off action by administrative appeal.

(4) In the event a Company fails to pay any amount when due under this Agreement, any further payments to the Company from FCIC will be set off against any amounts due FCIC regardless of the reinsurance year until such amounts are paid with appropriate interest.

(5) Notwithstanding an assignment made in accordance with section IV.(r), FCIC may set off:

(A) Any amount due FCIC under this Agreement;

(B) Any amounts for which the Company is indebted to the United States for taxes for which a notice of lien was filed or a notice of levy was served in accordance with the provisions of the Internal Revenue Code of 1986 (26 U.S.C. 6323), or any amendments thereto or modifications thereof, before acknowledgment by FCIC of receipt of the notice of assignment; and

(C) Any amounts, other than amounts specified in subparagraphs (A) and (B) due to FCIC or any other agency of the United States, if FCIC notified the assignee of such amounts to be set off at or before the time acknowledgment was made of receipt of the notice of assignment.

(r) Assignment

(1) No assignment by the Company shall be made of the Agreement, or the rights thereunder, unless:

(A) The Company assigns the proceeds of the Agreement to a bank, trust company, or other financing institution, including any federal lending agency, or to a person or firm that holds a lien or encumbrance at the time of assignment; and

(B) The Company receives the prior approval of FCIC to assign the proceeds of this Agreement to any other person or firm.

(2) Any assignment made under paragraph (1):

(A) Will be recognized only if and when the assignee thereof files with FCIC a written notice of the assignment together with a signed copy of the instrument of assignment;

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(B) Must cover all amounts payable and not already paid under the Agreement;

(C) Shall not be made to more than one party; and

(D) Shall not be subject to further assignment, except that any such assignment may be made to one party as agency or trustee for two or more parties.

(s.) Informal Resolution

If the Company disagrees with an act or omission of FCIC, except those acts implemented through the rulemaking process, the Company shall provide written notice of such disagreement to the Manager of FCIC. Within 10 business days of receipt of notice, the Manager or a designee shall schedule a meeting with the company in an attempt to resolve the disagreement. Notwithstanding any other provision in this section, any subsequent decision by FCIC on the act or omission will be considered a final administrative determination of FCIC and, therefore, subject only to review by the Board of Contract Appeals, with respect to a matter relating to this Agreement, or to judicial review. Nothing herein excuses the Company's performance under this Agreement during the attempted resolution of the dispute or constitutes a waiver of the Company’s right to any remedy authorized by law.

(t.) Interpretation of FCIC Procedures

If the Company identifies issues related to program integrity concerns involving FCIC procedures, vulnerabilities, or ambiguities in FCIC procedures, or conflicting applications of FCIC procedures among AIPs, the Company may provide written notice to FCIC of such issues, along with the Company’s proposed interpretation of the FCIC procedure at issue. Within 30 days of receipt of such notice, FCIC shall issue an interpretation in the form of a bulletin or other written guidance which specifically addresses and resolves the issue or issues identified by the Company. If FCIC fails to provide such an interpretation within 30 days, the Company may presume that its proposed interpretation is correct.

(u.) Transitional Implementation

This Agreement contains various obligations of the Company that cannot be met as of July 1, 2010. Accordingly, transitional implementation is appropriate as follows:

(1) Starting with the 2012 reinsurance year, the obligations in ______

______shall be met; and

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(2) Starting with the 2013 reinsurance year, the obligations in ______

______shall be met.

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Certification

The undersigned acknowledges that the Company and its Board of Directors, if applicable, has authorized the Company to enter into this Agreement for the ______reinsurance year. The undersigned certifies that the information provided by the Company related to this Agreement is true and accurate and acknowledges that any misrepresentation in the submission of this Agreement and information provided by the Company related to this Agreement may result in civil, administrative, or criminal liability against the Company.

APPROVED AND ACCEPTED FOR

THE FEDERAL CROP INSURANCE CORPORATION THE COMPANY

Signature Signature

Name Name

Title Title

Date Date

44 DB04/763432.0030/2554262.1 WP08 RED-LINED VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

STANDARD REINSURANCE AGREEMENT

between the

FEDERAL CROP INSURANCE CORPORATION

and the

(Insurance Company Name) (Hereafter “Company”)

(City and State)

This Agreement establishes the terms and conditions under which the Federal Crop Insurance Formatted: Line spacing: single Corporation (FCIC), supervised by the Risk Management Agency (RMA) as authorized in section 226A of the Federal Agriculture Improvement and Reform Act of 1996, will provide subsidy and reinsurance on eligible crop insurance contracts sold by the Company. This Agreement is authorized by the Federal Crop Insurance Act (Act) and regulations of FCIC published at 7 C.F.R. chapter IV (regulations).

This is a cooperative financial assistance agreement between FCIC and the Company to deliver eligible crop insurance contracts under the authority of the Act. For the purposes of this Agreement, use of the plural form of a word includes the singular and use of the singular form of a word includes the plural unless the context indicates otherwise. The Table of Contents and headings in this Agreement are descriptive only and have no legal effect on FCIC or the Company.

This Agreement becomes effective upon its execution by FCIC and the Company, and the annual approval of the Company's Plan of Operations by FCIC for the applicable reinsurance year. This Agreement is a single year agreement that may be effective for a subsequent reinsurance year in accordance with section IV.(l).

i DB04/763432.0030/2554262.1 WP08 RED-LINED VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

TABLE OF CONTENTS

Pages

I. Definitions 1-9

II. Reinsurance

(a) General Terms 9-13 (b) Reinsurance 13-21

III. Subsidies, Expenses, Fees, and Payments

(a) Subsidies and Expenses 21-26 (b) Administrative Fees 26-27 (c) Payments 27-28

IV. General Provisions

(a) Collection of Information and Data 28-29 (b) Reports 29-31 (c) Interest 32 (d) Escrow Account 32-33 (e) Supplemental Insurance 33 (f) Insurance Operations 34-35 (g) Access to Records and Operations 35-36 (h) Compliance and Corrective Action 36-39 (i) Suspension 39-40 (j) Termination 40-41 (k) Disputes and Appeals 41 (l) Agreement Change Date 41 (m) Funding Contingency 41 (n) Previous Obligations 42 (o) Preemption of State Law 42 (p) Discrimination 42 (q) Set Off 42-43 (r) Assignment 43-44 (s) Informal Resolution (t) Interpretation of FCIC Procedures (u) Transitional Implementation

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SECTION I. DEFINITIONS Formatted: Line spacing: single

To the maximum extent practicable, terms that have been defined in the incorporated regulations and the Act will be given the same meaning for the purpose of this Agreement. Since some terms may have more than one definition in the regulations and the Act, the specific regulation or section of the Act to be used will be specified herein.

“Act” in lieu of the definition in the incorporated regulations, means the Federal Crop Insurance Act (7 U.S.C. §§ 1501-1524).

“Actuarial data master file” means the electronic data processing (EDP) compatible information distributed by FCIC that contains premium rates, program dates, and related information concerning the crop insurance program for a crop year.

“Additional coverage” has the same meaning as the term “additional coverage” in section 502(b)(1) of the Act (7 U.S.C. § 1502(b)(1)).

“A&O subsidy” means the subsidy for the administrative and operating expenses paid by Deleted: “Adjusted net book premium” means the net book premium for each eligible FCIC on behalf of the policyholder to the Company for additional coverage level eligible crop insurance contract, adjusted in accordance crop insurance contracts in accordance with section 508(k)(4) of the Act (7 U.S.C. § with section III.(a)(2)(B)(ii) for purposes of 1508(k)(4)). calculating the A&O subsidy and CAT LAE paid to the Company.¶ “Administrative fee” means the processing fee the policyholder must pay under an eligible crop insurance contract.

“Affiliate” means any person, including, but not limited to, a managing general agent, agent, service provider, and loss adjuster, that: (1) collects premiums, services the policy, adjusts, or settles claims; (2) collects, processes, manages, and reports electronic data for the purposes of selling, administering, or servicing eligible crop insurance contracts for the Company; or (3) directly or indirectly, through one or more intermediaries, has the authority to control any aspect of the management of the book of business or any other decision made under this Agreement, without the prior and specific approval from the Company. This definition excludes commercial reinsurers and PICs if such reinsurers or PICs do not have the authority to control any aspect of the management of the book of business or any other decision made under this Agreement, without the prior and specific approval from the Company.

“Agency” means the person authorized by an AIP, or its designee, to sell and service eligible crop insurance contracts under the Federal crop insurance program.

“Agent” means any individual who is: (1) licensed by a State in which eligible crop insurance contracts are sold and serviced for the reinsurance year; and (2) authorized by the Company, or the Company’s designee, to sell and service such eligible crop insurance contracts.

“Agent of record” means, for the purposes of each eligible crop insurance contract, the Deleted: R primary Agent or Subagent who: (1) sells or services that eligible crop insurance contract; Deleted: any 1 DB04/763432.0030/2554262.1 WP08 RED-LINED VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

(2) provides substantive assistance in the selling or servicing of that eligible crop insurance contract; and (3) provides information to or obtains information from the Deleted: or policyholder for that eligible crop insurance contract. An agent of record shall be reported Deleted: Each eligible crop insurance contract by the Company for each eligible crop insurance contract, in accordance with Appendix has at least one, and may have multiple, Agents of Record. Both Agents and Subagents may be III. Agents of Record for a single eligible crop insurance contract. Any and a “Agreement” means this Standard Reinsurance Agreement, including Appendices, the Deleted: ll Act, and regulations, in effect as of the July 1 start of the reinsurance year, unless Deleted: Agents otherwise provided for in the Agreement. An Agreement in effect for a reinsurance year Deleted: R constitutes a separate and distinct Agreement from any Agreement that may be in effect for any other reinsurance year, even if the Agreement has been renewed in accordance Deleted: the with section IV.(l) Unless specifically provided for in this Agreement, if there is a conflict between a provision of the Act, the regulations, or procedures with the terms of this Agreement, the order of precedence will be: (1) the provisions of the Act; (2) the regulations; (3) this Agreement; and (4) the procedures, with (1) controlling (2) and (2) controlling (3), etc. The Act and regulations are available on the RMA website (www.rma.usda.gov).

“Agricultural commodity” has the same meaning as the term “agricultural commodity” in section 518 of the Act (7 U.S.C. § 1518), excluding livestock.

“AIP discretionary review” means a review conducted on an eligible crop insurance contract at the sole discretion of the Company.“Annual settlement” means the settlement Deleted: ¶ of accounts between the Company and FCIC for the reinsurance year, beginning with the October monthly transaction cutoff date following the end of the subsequent reinsurance year and continuing monthly thereafter as necessary.

“APH review” means verification in accordance with Appendix IV procedures of actual yields certified by a policyholder of an eligible crop insurance contract in support of a yield based plan of insurance policy’s actual production history (APH).“Approved Deleted: ¶ insurance provider (AIP)” means a legal entity, including the Company, which has entered into a Standard Reinsurance Agreement with FCIC for the applicable reinsurance year.

“Area or group based plan of insurance” means those plans of insurance that do not require a production history data base or verification of an insured’s actual production, inventory, or revenue.

“Billing date” means the date specified in the actuarial data master file as the date by which policyholders are billed for premium due on eligible crop insurance contracts.

“Book of business” means the aggregation of all eligible crop insurance contracts in force between the Company and its policyholders that have a sales closing date within the reinsurance year and are eligible to be reinsured under this Agreement.

“Cancellation date” has the same meaning as the term “cancellation date” in the applicable eligible crop insurance contract. 2 DB04/763432.0030/2554262.1 WP08 RED-LINED VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

“CAT LAE” means the reimbursement paid by FCIC for catastrophic level eligible crop insurance (CAT) contracts (as authorized in section 508(b) of the Act) (7 U.S.C. § 1508(b)) in accordance with section 508(b)(11) of the Act (7 U.S.C. § 1508(b)(11)).

“Cede” means to pass to another all or part of the net book premium and associated liability for ultimate net losses on eligible crop insurance contracts.

“Claim” means a request under an eligible crop insurance contract for an indemnity in an amount certain on a Company form that meets FCIC’s standards.

“Claims supervisor” means any person having immediate or day-to-day supervisory control, management or oversight authority of the activities of loss adjusters or other persons who determine whether an indemnity will be paid and the amount thereof.

“Company payment date” means the last business day of the month.

“Conflict of interest review” means a review that may be either mandatory or AIP discretionary as determined by the procedures in Appendix IV and is conducted on a payable claim for indemnity.

“Contract change date” has the same meaning as the term “contract change date” in the applicable eligible crop insurance contract.

“Controlled Substance” has the meaning provided in 7 C.F.R. § 3021.610.

“Conviction” has the meaning provided in 7 C.F.R. § 3021.615.

“Cooperative association” for the purposes of section 508(b)(5)(B) of the Act (7 U.S.C. § 1508(b)(5)(B)) means a member owned and controlled entity that is recognized by the State in which the entity is doing business as a cooperative related to agriculture.

“Criminal Drug Statute” has the meaning provided in 7 C.F.R. § 3021.625.

“Data mining” means working in partnership with the Center for Agricultural Excellence (CAE) (or successor),RMA, and AIPs by incorporating the latest advances in database technology into a single, centralized “data warehouse” of all the crop insurance-related data in RMA databases over time. Federal investigators, or RMA staff, or AIPs in cooperation with RMA staff will use this centralized data warehouse to search, or “mine,” existing data records to compare policies and/or detect individual producers whose policies demonstrate atypical or anomalous patterns. Data mining will also be used to analyze and uncover larger national patterns that may indicate patterns of misrepresentation, fraud, waste, or abuse.

“Drug-free Workplace” has the meaning provided in 7 C.F.R. § 3021.635.

“Eligible crop insurance contract” means an insurance contract with an eligible producer: (1) covering an agricultural commodity authorized to be insured under the Act

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and approved for sale by FCIC; (2) with terms and conditions in effect as of the applicable contract change date; (3) that is sold and serviced in accordance with the Act and FCIC Deleted: consistent regulations; and (4) that has a sales closing date within the reinsurance year. Deleted: , Deleted: , “Eligible producer” means a person who has an insurable interest in an agricultural commodity, has not been determined ineligible to participate in the Federal crop insurance Deleted: the procedures, and this Agreement; program, and possesses a United States issued social security number (SSN) or employer identification number (EIN).

“Employee” has the meaning provided in 7 C.F.R. § 3021.640.

“Experienced agent” means a person licensed by a State to sell and service eligible crop Deleted: the insurance contracts, who has completed at least one full year of sales and service, and is current on certification requirements as may be specified by FCIC.

“Experienced loss adjuster” means a person who is licensed by a state, or has passed a proficiency testing program approved by FCIC, as applicable, and has completed at least one full year of loss adjustment and is current on certification requirements as may be specified by FCIC.

“FCIC payment date” means the first banking day following the 14th calendar day after FCIC receives the signed, certified monthly or annual settlement report and supporting data from the Company upon which any payment is based.

“Field inspection” means an onsite visit to the policyholder’s farming operation that may include one or more of the following: determining eligibility; compliance with program terms and conditions; the correct amount(s) of premium and any indemnity, prevented planting or replant payment; or whether agents and loss adjusters have complied with all applicable procedures. A field inspection also may include, but is not limited to, review of preliminary and final loss adjustments, pre-harvest or growing season inspections, pre- acceptance inspections, the verification of adequate records, a determination that the reported practice is being carried out in accordance with good farming practices, a determination of whether the crop has been replanted, or to evaluate agent or loss adjuster conduct or the circumstances of a loss.

“File review” means a review of documents contained in a policyholder’s file maintained Formatted: Line spacing: single by the Company or an affiliate. When a file review is performed, appropriate documents will be reviewed to determine whether the information or data was timely submitted and accurate and to verify that information to support a claim’s approval or denial is appropriate and accurate based on information required to be obtained under the applicable procedures and that supporting documents have been properly used in document completion.

“FSA” has the same meaning as the term “Farm Service Agency” in section 1. of the Common Crop Insurance Policy Basic Provisions.

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“Growing season inspection” means a visit to the policyholder’s farming operation during the insured crop’s growing season for the purpose of making findings which may include but are not limited to whether good farming practices are being carried out on the insured crop.

“Immediate family” means an individual’s father, mother, stepfather, stepmother, brother, sister stepbrother, stepsister, son, daughter, stepson, stepdaughter, grandparent, grandson, granddaughter, father-in-law, mother-in-law, brother-in-law, sister-in-law, son- in-law, daughter-in-law, the spouse of the foregoing, and the individual’s spouse.

[Note – Inspection has been deleted as a definition. The verification requirements have been reincorporated into Appendix IV. The basic requirements within the term’s definition have been moved to the General Company Responsibilities in section III of Appendix IV. That placement has broader applicability. The general requirements, when used in conjunction with the recommended definitions for the Deleted: ¶ various review categories plus the added review category requirement detail, will Deleted: [Note: The definition of “inspection” provide a clearer and more specific description of the various review procedures. should be revised in accordance with suggestions of the Appendix IV work group on quality control.]¶ “Insurable interest” has the same meaning as the term “share” in the applicable eligible “Inspection” means the verification:¶ crop insurance contract. <#>As to whether the application, production report, acreage report, notice of loss or claim, or other relevant documents “Loss adjuster” means a person who verifies information affecting the coverage and (such as a Farm Report for AGR eligible makes factual determinations regarding the existence or amount of loss under a claim crop insurance contracts) were timely submitted;¶ made by the policyholder. <#>Of the information reported on the documents:¶ <#>referenced in (1) above, and related to “Loss ratio” means the ratio calculated by dividing the ultimate net loss by the net book the claim, including preliminary and final premium, expressed as a percentage. For example, if $1 ultimate net loss is paid and 50 loss adjustment (Verification of the approved yields will consist of cents net book premium is received, this would be expressed as a 200 percent loss ratio. examination of the records supporting the last three years certified for the crop); and¶ “Managing General Agent (MGA)” means an entity that meets the definition of <#>related to pre-harvest, growing season, or pre-acceptance examination of managing general agent under the laws of the State in which such entity is incorporated the crop;¶ and in every other state in which it operates, or in the absence of such State law or <#>That policy documents, including actuarial documents, have been properly regulation, meets the definition of a managing general agent or agency in the National used;¶ Association of Insurance Commissioners Managing General Agents Act, or a successor <#>The reported practice is being carried Act. out in accordance with good farming practices;¶ <#>The crop has been planted, or replanted “Material” means an act or omission that, as determined by FCIC, would: (1) cause FCIC as applicable;¶ to assume a significant additional risk which it would not otherwise have assumed but for Formatted: Font: Bold the act or omission; (2) cause the amount paid by or to FCIC to significantly differ from Deleted: The policy constitutes an eligible the amount that would otherwise be paid or owed but for the act or omission; (3) likely crop insurance contract;¶ <#>The producer qualifies as an eligible preclude or make it substantially more difficult to carry out the requirements of the producer; and¶ Agreement and procedures; or (4) create a program vulnerability that could cause a <#>The agent or loss adjuster has complied payment to be made that would be significantly different than would otherwise be made if with procedures.¶ the act or omission had not occurred. Formatted: Line spacing: single Formatted: Line spacing: single Deleted: an eligible crop insurance contract. Formatted: Line spacing: single 5 DB04/763432.0030/2554262.1 WP08 RED-LINED VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

“Net book premium” means the premium calculated in accordance with section IV.(b)(8) totaled for all eligible crop insurance contracts, less A&O subsidy, CAT LAE, cancellations, adjustments, and administrative fees.

“New agent” means a person licensed by a State to sell and service eligible crop Deleted: the insurance contracts who has not completed one full year of sales and service.

“New loss adjuster” means a person who is licensed bya State, or has passed a Deleted: the proficiency testing program approved by FCIC, as applicable, and has not completed one full year of loss adjustment.

“Non-yield based plan of insurance” means those plans of insurance that do not require a production history data base but may require verification of an insured’s current crop year actual production, inventory, or revenue in order to determine any indemnity.

“Person” means an individual or legal entity.

“Personally Identifiable Information” means any information about an individual maintained by the Company and its affiliates, including but not limited to, education, financial transactions, medical history, and criminal or employment history and information which can be used to distinguish or trace an individual’s identity, such as

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name, social security number, date and place of birth, mother’s maiden name, biometric records, etc., including any other personal information which is linked or linkable to an individual.

“Plan of insurance” means a broad category of crop insurance containing one or more Deleted: type types of eligible crop insurance contracts. Deleted: a Deleted: contract (such as yield protection, “Plan of Operations” means the documents and information the Company must submit revenue protection, area-based protection, etc. or in accordance with section IV.(f)(2), Appendix II, and applicable procedures. any successor,) that has been designated by FCIC as a separate category “Policy Acceptance and Storage System (PASS)” means any RMA or FCIC approved electronic data processing (EDP) system that receives and accepts or rejects Company Deleted: , submitted data for eligible crop insurance contracts.

“Policy Issuing Company (PIC)” means an insurance company that issues eligible crop insurance contracts reinsured under this Agreement on behalf of the Company. “Policy Deleted: and cedes 100 percent of the premiums review work group” means a work group formed in accordance with section III(b)(4) of and associated losses to the Company.¶ Appendix IV. The work group will be composed of FCIC representatives from Insurance Services, Product Management, and Compliance and representatives of AIPs who will meet collectively on an annual basis, or more often on an ad hoc basis if deemed necessary by the work group. At a minimum, the work group will meet annually on a date that is not less than sixty days prior to the date that AIPs are required to submit their Plan of Operations. Designated representatives, meeting agendas, meeting dates and locations will be coordinated through Insurance Services.

[Note - The App. IV reference above cites Section 515 [7 U.S.C. 1515] (a)(2) of the Formatted: Line spacing: single Act which states that FCIC shall work actively with approved insurance providers to address program compliance and integrity issues as such issues develop. Specific functions of the workgroup are specified elsewhere within Appendix IV.]

“Policyholder” means an eligible producer who has been issued one or more eligible crop insurance contracts.

“Procedures” means the applicable handbooks, manuals, bulletins, memoranda or other written directives issued by FCIC related to an eligible crop insurance contract and this Agreement as issued on or before March 15 prior to the next reinsurance year. Procedures issued thereafter shall be acceptable to both FCIC and the Company.

“Producer premium” means that portion of the premium for an eligible crop insurance contract payable by the policyholder.

“Program error rate” means the error rate determined by RMA as a result of its National Operation Reviews of AIPs.

“Protected Information” means any Personally Identifiable Information about a policyholder, or information about the policyholder’s farming operation or insurance policy, acquired from the policyholder, USDA, the Comprehensive Information 7 DB04/763432.0030/2554262.1 WP08 RED-LINED VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

Management System, or the policyholder’s previous or current approved insurance provider or agent that is protected from disclosure by the Privacy Act of 1974 (5 U.S.C. § 552a), section 502(c) of the Act (7 U.S.C. § 1502(c)), or any other applicable Federal statute. This definition includes all hard copy or electronic information.

“Rebate” means to pay, allow, or give, or offer to pay, allow or give, directly or indirectly, either as an inducement to procure insurance or after insurance has been procured, any benefit (including money, goods or services for which payment is usually made [except any service provided to fulfill an obligation of the Company under this Agreement]), discount, abatement, credit, or reduction of the premium named in the insurance policy and any other valuable consideration or inducement not specified in the policy.

“Records” means documentation in any form that relates to an eligible crop insurance contract or this Agreement. Such documentation includes original signed documents, or legible electronic images of the original signed documents, any other documents, or legible electronic images of any other documents, and electronic information either produced by the Company or an affiliate or obtained from outside sources or the policyholder that are utilized by the Company or an affiliate to establish, calculate, verify or determine a policyholder’s program eligibility, insurance coverage, APH yields, premium, liability, or indemnity.

“Reinsurance year” means the term of this Agreement beginning July 1 and ending on Deleted: “Reference price” means the price established for each commodity listed in section June 30 of the following year and, for reference purposes, identified by reference to the III.(a)(2)(B)(ii)(I) that is used for purposes of year containing June. calculating the A&O subsidy and CAT LAE paid to the Company.¶ “Relative” means an individual who: (1) is immediate family; or (2) either resides in the household of, or engages in business with respect to, a farming operation with the person in question, regardless of whether or not the individual is immediate family.

“Retained” as applied to ultimate net losses, net book premium, or book of business, means the remaining liability for ultimate net losses and the right to associated net book premiums after all reinsurance ceded to FCIC under this Agreement.

“Risk subsidy” means that portion of the premium for an eligible crop insurance contract paid by FCIC on behalf of the policyholder.

“Sales closing date” has the same meaning as the term “sales closing date” in the applicable eligible crop insurance contract.

“Sales supervisor” means any person having immediate or day-to-day supervisory control, management or oversight authority of the activities of sales agents or sales agency employees on behalf of the Company.

“Satisfactory performance record” means a record of performance that demonstrates substantial conformity with applicable requirements, as specified in section II.(a)(9).

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“Satisfactory work performance” means the work of the agent, loss adjuster, or other Formatted: Line spacing: single affiliates that is evaluated annually and found to be in compliance with the requirements of this Agreement.

“Service provider” means managing general agents, and any other entity (other than an Formatted: Line spacing: single agent or agency) who issues or services eligible crop insurance contracts, prepares or transmits data, or, who on a regional, State or other area basis, provides loss adjustment services. Regardless of any other factor, a service provider is an affiliate.

“Signature” means the affixing of a person's name in a distinctive way as a form of identification or authorization, including in an electronic or digital form as approved by FCIC.

“State Group 1” means Illinois, Indiana, Iowa, Minnesota, and Nebraska.

“State Group 2” means Alabama, Arizona, Arkansas, California, Colorado, Florida, Georgia, Idaho, Kansas, Kentucky, Louisiana, Michigan, Missouri, Mississippi, Montana, North Carolina, North Dakota, New Mexico, Ohio, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Texas, Virginia, Washington, and Wisconsin.

“State Group 3” means Alaska, Connecticut, Delaware, Hawaii, Maine, Massachusetts, Maryland, Nevada, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Utah, Vermont, West Virginia, and Wyoming.

“Subagent” means any individual: (1) licensed by a State in which an eligible crop insurance contracts is sold and serviced for the reinsurance year; and (2) who provides on behalf of an Agent any sales or service, or assistance with sales and service, for some or all of the Agent’s eligible crop insurance contract(s).

“Trade association” means an entity recognized by the State in which the entity is doing business as a trade association and shall not include an organization that is formed for the purposes of providing insurance.

“Transaction cutoff date” for weekly data reporting is 8 p.m. Central time on Friday of each week and for monthly data reporting is 8 p.m. Central time on Friday after the first Sunday of the month. Any transaction due date stipulated herein that occurs on a Saturday will be due by the following Friday’s transaction cut-off date.

“Ultimate net loss” means the amount paid by the Company under any eligible crop insurance contract reinsured under this Agreement in settlement of any claim and in satisfaction of any judgment, arbitration award, or mediation (including any interest awarded as specified in section XI.(e)(1) of Appendix I) rendered on account of a claim under an eligible crop insurance contract, less any recovery or salvage by the Company.

“Underwriting” means the determination by the Company that all terms and conditions Deleted: , made by someone other than the of eligibility and coverage have been met to qualify the policy as an eligible crop agent, insurance contract. The Company can fulfill this requirement through automated 9 DB04/763432.0030/2554262.1 WP08 RED-LINED VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

processing system tests designed to confirm underwriting requirements. An individual is not required to review each application or policy personally. The Company and its service providers shall not permit agents, agent employees, company sales supervisors, or any relative to be involved in the acceptance and verification of underwriting data relating to eligibility and coverage for an eligible crop insurance contract written by such person.

“Underwriting Capacity Manager” (UCM) means an FCIC system that monitors the amount of insurance authorized to be insured or reinsured, and accepts or rejects the application of an eligible producer based on the availability of such amount of insurance, if limits have been placed by Federal legislation or FCIC on the amount of insurance authorized to be insured or reinsured.

“Underwriting gain” means the amount by which the Company’s share of retained net book premium exceeds its share of retained ultimate net losses.

“Underwriting loss” means the amount by which the Company’s share of retained ultimate net losses exceeds its share of retained net book premium.

[Note: Duplicates definition of same term.]“Verification” means the process of Deleted: “Satisfactory work performance” means the work of the agent, loss adjuster, or providing reasonable assurance that the information submitted is true and accurate through other affiliates that is evaluated annually and independent third parties or independent documentation in accordance with procedures. found to be in compliance with the requirements “Written Agreement” means the type of document specified in section 1. of the of this Agreement. Common Crop Insurance Policy Basic Provisions. Deleted: ¶ Deleted: determination of whether “Yield based plan of insurance” means those plans of insurance that require an actual Deleted: With respect to certifications, asking production history data base. the policyholder whether the information is true and accurate does not constitute verification.¶ SECTION II. REINSURANCE Deleted: same as

(a) General Terms

(1) For the Company to receive reinsurance, A&O subsidy, CAT LAE, and risk subsidy under this Agreement, an insurance contract must qualify as an eligible crop insurance contract, except as otherwise specified in this Agreement.

(2) Notwithstanding paragraph (3), applications for eligible crop insurance contracts that are rejected by the UCM, as applicable, will not be eligible for reinsurance, A&O subsidy, CAT LAE, or risk subsidy.

(3) Except as specified below, the Company must offer and market all plans of insurance for all crops in any State where actuarial documents are available in which it writes an eligible crop insurance contract and must accept and approve applications from all eligible producers. The Company may not cancel an eligible crop insurance contract held by a policyholder so long as the policyholder remains an eligible producer and the Company continues to write eligible crop insurance contracts within the State, except 10 DB04/763432.0030/2554262.1 WP08 RED-LINED VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

as authorized by FCIC. The Company is not required to offer such plans of insurance as may be approved by FCIC under the authority of section 508(h) of the Act. (7 U.S.C. § 1508(h)) However, if the Company chooses to offer any such plan, it must offer the plan in all approved states in which it writes an eligible crop insurance contract where such plan is made available and it must comply with all provisions of this paragraph as to such plan.

(4) In exchange for the reinsurance premiums ceded by the Company pursuant Deleted: provided to this Agreement, FCIC will provide the Company with reinsurance in accordance with the provisions of this Agreement.

(5) A Company and its affiliates are prohibited from providing a rebate except as authorized in section 508(a)(9)(B) of the Act (7 U.S.C. § 1508(a)(9)(B)).

(6) A violation of paragraph (5) will result in the denial of reinsurance, A&O subsidy, CAT LAE, and risk subsidy, for all eligible crop insurance contracts for which such violation occurred and may subject the person who committed or authorized the violation to administrative sanctions, including disqualification under the Act or applicable regulations.

(7) Only the amount of net book premium authorized by FCIC in the approved Plan of Operations, including any amendments under Appendix II, shall be reinsured and subsidized under this Agreement.

(8) The Company shall have the financial and operational resources, organization, experience, internal controls, and technical skills to meet the requirements, including addressing reasonable risks, associated with the Agreement, including 7 C.F.R. part 400, subpart L, as determined by FCIC.

(A) The Company shall provide information necessary to evaluate compliance with this paragraph as often as required by FCIC. Deleted: : Deleted: <#>Its service providers or the services they provide (e.g., (B) The Company must provide written notice to FCIC of any software, software agreements, service anticipated change in its, or its affiliates’, business organization, agreements, etc.); or¶ <#>Its, or its affiliates’, business orperations, or financial condition, if such change: organization, operations, finances or the sales expectations of the Company, (i) Is at variance with the Company’s Plan of Operations; or if such change:¶ Formatted: Heading 5, Line spacing: single (ii) Could affect materially the Company’s ability to perform Deleted: \ under the Agreement. Formatted: Heading 5, Line spacing: single, Outline numbered + Level: 5 + Numbering (C) If any change referenced in subparagraph (B) exists, whether FCIC Style: i, ii, iii, … + Start at: 1 + Alignment: Left learns of the change by notice from the Company or otherwise: + Aligned at: 2" + Tab after: 2.5" + Indent at: 2.5" Formatted: Line spacing: single 11 DB04/763432.0030/2554262.1 WP08 RED-LINED VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

(i) FCIC may require the Company to amend its Plan of Operations; or

(ii) The Company may submit to FCIC in writing a request to amend the Plan of Operations.

(I) The request must be approved by FCIC in writing before the amended Plan of Operations can become a part of this Agreement.

(II) The request will be evaluated in accordance with the review procedures applicable to the original Plan of Operations, except that FCIC will also consider whether FCIC’s risk is materially increased.

(III) FCIC will not approve a request to amend the Plan of Operations if such amendment would materially increase the risk of loss to FCIC unless FCIC, at its sole discretion, determines that the amendment arises from an action of FCIC or U.S. Department of Agriculture that substantially increases the risk of underwriting loss on eligible crop insurance contracts written by the Company.

(IV) Changes to eligible crop insurance contracts made in accordance with the terms of such contract are not a basis for an amendment to the Plan of Operations.

(D) If at any time during the reinsurance year FCIC determines that the Deleted: cannot Company is not in compliance with the requirements of this paragraph or FCIC learns that the Company may be in substantial risk for failure to comply with the requirements of this paragraph, the Company must take corrective actions acceptable to FCIC in accordance with section IV.(h)(4), or be subject to the remedies provided for in this Agreement.

(9) The Company must demonstrate a satisfactory performance record to obtain an Agreement and continue to hold an Agreement for the reinsurance year. The following will be reviewed to determine whether there is a satisfactory performance record:

(A) In the most recent five reinsurance years, the Company and service providers must demonstrate:

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(i) There is substantial conformity with the requirements of this Agreement, the regulations and procedures of FCIC as applicable;

(ii) Any material deficiency was caused by circumstances beyond the Company’s control, and that, as soon as the Company discovered the deficiency, the Company took timely and appropriate corrective action;

(iii) There was no material misconduct on the part of the Company or its service providers; and

(iv) To the satisfaction of FCIC, any other mitigating factors that would prove, notwithstanding any identified deficiency, the Company has a satisfactory performance record;

(B) Whether the Company can, to the satisfaction of FCIC, demonstrate the ability to comply with the requirements of paragraph (8);

(C) Whether the Company can demonstrate the ability to fulfill the requirements under this Agreement under various risk assessment scenarios, including but not limited to significant nationwide losses, the loss or failure of a service provider, the threats and risks outlined in section VI. of Appendix II, or other risks as identified by FCIC; and

(D) Whether FCIC or a State has identified any material deficiencies that may raise questions or concerns regarding the Company’s ability to meet the requirements of this Agreement.

(10) If the Company previously has not been an AIP, the Company and its service providers must demonstrate to the satisfaction of FCIC that it can achieve and maintain a satisfactory performance record consistent with paragraph (9).

(11) Failure to meet the conditions stated in paragraphs (8), (9), or (10), may subject the Company to appropriate remedies in this Agreement, including but not limited to denial of an Agreement, suspension of the Agreement or a reduction in the net book premium the Company is authorized to write.

(12) Unless otherwise specifically approved by FCIC in advance in writing, the Company may only delegate its authority or control over the designation of eligible crop insurance contracts to reinsurance funds to its managing general agent and the Company must include the delegation in its Plan of Operation. 13 DB04/763432.0030/2554262.1 WP08 RED-LINED VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

(13) Failure of the Company to comply with the provisions of this Agreement, including timely submission of data and reports, does not excuse or delay the Company’s requirement to pay any amount due to FCIC by the dates specified herein.

(14) Neither the Company nor its affiliates shall assess service fees or additional charges on eligible crop insurance contracts reinsured and subsidized under this Agreement except as authorized by the Act or approved by FCIC in writing.

(b) Reinsurance

(1) The Company, in accordance with its Plan of Operations, may designate an eligible crop insurance contract to the Assigned Risk Fund. Any Deleted: Residual eligible crop insurance contract not specifically designated by the Company to the Assigned Risk Fund will automatically be assigned to the Deleted: Residual Commercial Fund by State.

(2) Unless otherwise specified in Appendix III, if the Company elects to designate eligible crop insurance contracts to the Assigned Risk Fund, it Deleted: Residual must do so not later than the transaction cutoff date for the week containing the 30th calendar day after the sales closing date for the eligible crop insurance contract, except:

(A) In the case of written agreements requiring annual FCIC approval or for the initial year of an eligible crop insurance contract associated with a written agreement only (excluding written agreements specified in Appendix III), not later than the transaction cutoff date for the week containing the 30th calendar day after FCIC approval;

(B) For the initial year of application for any agricultural commodity without a fixed sales closing date, the later of the transaction cutoff date for the week containing the 30th calendar day after the eligible producers signature date on the application, or the transaction cutoff date for the week containing the 30th calendar day prior to the cancellation date; and

(C) For the subsequent year of insurance for any agricultural commodity without a fixed sales closing date, the transaction cutoff date for the week containing the 30th calendar day prior to the cancellation date for the previous year.

[Note: Paragraphs 3 through 9 have been deleted. NCIS proposes continued use of the Assigned Risk Fund under existing terms and conditions. NCIS also has made alternative proposals for the Commercial Fund and elimination of net book quota share in response to the first draft.] 14 DB04/763432.0030/2554262.1 WP08 RED-LINED VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

Formatted: Indent: Left: 2", Line spacing: single, No bullets or numbering Deleted: <#>Residual Fund¶ <#>The Company shall retain a 50 percent interest in premium and associated ultimate net losses in the Residual Fund. The remainder is ceded to FCIC.¶ <#>The Company’s retained premium and associated ultimate net losses in the Residual Fund shall be based on the sum of all eligible crop insurance contracts assigned by the Company to the Residual Fund, subject to the minimum assignments specified in paragraph (4)(B).¶ <#>Commercial Fund¶ <#>Retention:¶ <#>The Company shall retain at least a 35 percent interest in premium and associated ultimate net losses in the Commercial Fund in each State. The remainder is ceded to FCIC.¶ <#>The retention percentage for the Commercial Fund in each State must be made in 5 percent increments and designated in the Company’s Plan of Operations according to Appendix II.¶ <#>Minimum assignments:¶ <#>The associated net book premium of eligible crop insurance contracts assigned to the Commercial Fund shall be at least 25 percent of the Company’s net book premium in each State. Any net book premium associated with pilot programs shall not be used in determining the Company’s minimum assignment to the Commercial Fund.¶ <#>In the event that the percentage of net book premium in the Commercial Fund is less than 25 percent in any State, the amount of the Company’s premium and associated ultimate net losses shall be increased to meet the requirements of clause (i).¶ <#>Underwriting Loss¶ <#>Commercial Fund¶ After the retentions and assignments under paragraph (4), the amount of underwriting loss retained by the Company will be calculated within each State as the sum of the following:¶ <#>For that portion of the underwriting loss amount for which the company’s loss ratio exceeds 100 percent and is less than or equal to 160 percent, the Company shall retain an amount of the underwriting loss equal to the product of the following:¶ <#>its retained net book premium;¶ <#>the lesser of the Company’s actual loss ratio or 160 percent, minus 100 percent; and¶ ... [1] Formatted: Line spacing: single 15 DB04/763432.0030/2554262.1 WP08 RED-LINED VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

(D) Deleted: <#>2.0 percent.¶ <#>FCIC shall assume 100 percent of that portion of the underwriting (3) Contingency Fund loss amount by which the national loss ratio for the Company exceeds 500 percent.¶ (A) The Contingency Fund, which is part of the insurance fund <#>Underwriting Gain¶ authorized under section 516(c) of the Act (7 U.S.C. § 1516(c)), is <#>Commercial Fund¶ used to offset expenses incurred by FCIC to administer a After the retentions and assignments under paragraph (4), the amount of Company’s book of business in the event of Company supervision, underwriting gain retained by the rehabilitation, insolvency or operational deficiency, or an Company will be calculated within each State as the sum of the following:¶ equivalent event, as determined by FCIC, or the Agreement is <#>For that portion of the terminated for cause. underwriting gain amount for which the company’s loss ratio is less than or equal to 100 percent but is (B) Any amounts owed to FCIC by the Company in accordance with greater than or equal to 65 percent, sections II.(b)(__), IV.(b)(9), IV.(b)(12), IV.(h), and IV.(j)(4) will the Company shall retain an amount of the underwriting gain equal to the be accounted for in the Contingency Fund. product of the following:¶ <#>its retained net book premium;¶ (4) The Company may reinsure its liability for ultimate net losses remaining <#>100 percent minus [the after all retentions, designations, and assignments under this Agreement. greater of the Company’s actual Insurance companies that qualify as PICs are not precluded from entering loss ratio or 65 percent]; and¶ <#>the following percentage for into reinsurance arrangements with the Company. The Company shall the applicable State:¶ inform FCIC in writing of all reinsurance arrangements that relate to State Group 1 ... [2] eligible crop insurance contracts. Reinsurance arrangements used to meet Formatted ... [3] the Company’s obligations under this Agreement, unless otherwise Formatted ... [4] specified by FCIC in writing, must meet the definition of, and the Formatted: Font: Bold standards applicable to: Formatted ... [5] (A) Reinsurance in the National Association of Insurance Formatted: Font: Bold Commissioners (NAIC) Credit for Reinsurance Model law, or a Formatted ... [6] NAIC model successor law; Formatted ... [7] Deleted: ¶ (B) Standards for reinsurance under the NAIC Accounting Practices Deleted: 12 and Procedures Manual including any revisions or updates; and Deleted: required (C) Any other relevant standards developed by the NAIC for credit for reinsurance.

(5) In addition to other remedies provided in this Agreement, FCIC may, at its sole discretion, offer additional reinsurance beyond what is otherwise provided in this Agreement as follows:

(A) Whenever the Company reports an amount of net book premium greater than FCIC authorized as the maximum reinsurable net book premium, FCIC may cause the net underwriting gain or loss for all States, as determined in paragraph (__), payable to or by the Deleted: 8 Company to be reduced according to the ratio of the excess net book premium to the total reported net book premium. The excess will then be reinsured under this Agreement. The Company agrees 16 DB04/763432.0030/2554262.1 WP08 RED-LINED VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

to pay FCIC an additional reinsurance premium equal to 5 percent of the excess net book premium whenever this provision applies.

(B) The reinsurance premium collected pursuant to this paragraph shall be deposited into the Contingency Fund.

SECTION III. SUBSIDIES, EXPENSES, FEES, AND PAYMENTS

(a) Subsidies and Expenses

(1) Risk subsidy shall be determined in accordance with the Act and will be provided on behalf of policyholders to the Company on the monthly settlement report specified in paragraph (2) below.

(2) A & O Subsidy

(A) Notwithstanding the provisions of this section, under no circumstances will A&O subsidy or CAT LAE be paid in excess of the amount authorized by statute.

(B) A&O subsidy and CAT LAE for eligible crop insurance contracts will be determined and paid as set forth below.

(i) A&O subsidy and CAT LAE will be paid to the Company beginning with the October monthly settlement report for the reinsurance year, after the Company submits, and FCIC accepts, acreage reports, or other similar reports (e.g., preliminary tonnage report for eligible raisin crop insurance contracts, or inventory value reports for nursery and clam crop insurance contracts, annual farm report for eligible AGR crop insurance contracts). [For the 2012 and succeeding reinsurance years, this provision will read “After the Company submits, and FCIC accepts, acreage reports, or other similar reports (e.g., preliminary tonnage report for eligible raisin crop insurance contracts, or inventory value reports for nursery and clam crop insurance contracts, annual farm report for eligible AGR crop insurance contracts), the A&O subsidy and CAT LAE

17 DB04/763432.0030/2554262.1 WP08 RED-LINED VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

will be paid to the Company on the October monthly settlement report following the end of the reinsurance year.”]

[Note: NCIS believes use of “adjusted net book premium” (instead of premium used to define loss ratio) and reference prices is illegal because RMA has no authority under the Act to make such changes in calculating A&O. Further, NCIS has prepared a paper identifying other fundamental flaws in FCIC’s approach to A&O.]

(I) Deleted: <#>Adjusted net book premium amounts shall be used to determine the amount of A&O (ii) For any eligible crop insurance contract with CAT subsidy and CAT LAE paid to the coverage, the A&O subsidy is zero percent of net book Company. The adjusted net book premium shall be calculated by premium. multiplying the net book premium by:¶ (iii) Except as otherwise provided by law, for eligible crop <#>The ratio calculated by dividing the reference price for insurance contracts with additional coverage that provide the insurable commodity for the coverage under an area-based, or similar plan of insurance reinsurance year as specified in the chart below by the price for the A&O subsidy will be: the insurable commodity used to establish the net book premium (I) Except as provided in subclause (II), 12.0 percent for each eligible crop insurance contract for the referenced of net book premium for such eligible crop commodities, subject to subclause insurance contracts. (III):¶ 2011 Reinsurance Year Reference Crops and Prices ... [8] (II) For area-based or similar plans of insurance that Formatted: Font: Bold were not widely available as of the 2008 reinsurance year, Formatted ... [9] Formatted: Font: Bold

(aa) 20.1percent of net book premium for such Formatted ... [10] eligible crop insurance contracts with Formatted ... [11] coverage levels less than 80 percent; Formatted ... [12] (bb) 17.8 percent of net book premium for such Formatted: Font: Bold eligible crop insurance contracts with Deleted: ¶ coverage levels at 80 percent; and Formatted: Font: Bold Deleted: the adjusted …et ...book [13] (cc) 17.1 percent of net book premium for such Deleted: the adjusted …et... [14] eligible crop insurance contracts with Deleted: the adjusted …et coverage levels at 85 percent or higher. ... [15] Deleted: the adjusted …et... [16] (iv) Subject to clause (vi), for additional coverage eligible crop Deleted: <#>If authorized by law, 20.1 percent of the adjusted insurance contracts, except those referenced in clause (iii), net book premium calculated in that provide revenue coverage that can increase liability accordance with section whenever the market price at the time of harvest exceeds III.(a)(2)(B)(ii).¶ ... [17]

18 DB04/763432.0030/2554262.1 WP08 RED-LINED VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

the market price at the time of planting the A&O subsidy will be:

(I) 18.5 percent of net book premium for such eligible Deleted: , crop insurance contracts with coverage levels less Deleted: the adjusted than 80 percent; and Deleted: calculated in accordance with section III.(a)(2)(B)(ii) (II) 16.4 percent of net book premium for such eligible attributed to crop insurance contracts with coverage levels at 80 Deleted: , percent; and Deleted: the adjusted Deleted: calculated in accordance (III) 15.8 percentof net book premium for attributed to with section III.(a)(2)(B)(ii) such eligible crop insurance contracts with attributed to coverage levels at 85 percent or higher. Deleted: , percent Deleted: the adjusted (v) Subject to clause (vi), for all other eligible crop insurance Deleted: calculated in accordance contracts the A&O subsidy will be: with section III.(a)(2)(B)(ii) Deleted: <#>If authorized by law, (I) 21.9 percent of net book premium for such eligible 18.5 percent of the adjusted net book premium calculated in crop insurance contracts with coverage levels less accordance with section than 80 percent; and III.(a)(2)(B)(ii) attributed to such eligible crop insurance contracts.¶ (II) 19.4 percent of net book premium for such eligible Deleted: i crop insurance contracts with coverage levels at 80 Deleted: , percent; and Deleted: the adjusted Deleted: calculated in accordance (III) 18.7 percent of net book premium for such eligible with section III.(a)(2)(B)(ii) crop insurance contracts with coverage levels at 85 attributed to percent or higher. Deleted: , Deleted: the adjusted (vi) For states in which the loss ratio is greater than 120 Deleted: calculated in accordance percent of the total net book premium written in the state with section III.(a)(2)(B)(ii) by all AIPs, add 1.15 percentage points to the A&O attributed to subsidy rates established in clauses (iv) and (v). Deleted: , Deleted: the adjusted (vii) For purposes of determining the loss ratio within this Deleted: calculated in accordance section, any adjustment to increase or decrease the loss with section III.(a)(2)(B)(ii) ratio for a state will be made on the monthly settlement attributed to report for the applicable reinsurance year, and end subject Deleted: <#>If authorized by law, 21.9 percent of the adjusted net to the limitations for submitting data through automated book premium calculated in systems as provided in section IV.(b)(3). accordance with section III.(a)(2)(B)(ii) attributed to such eligible crop insurance contracts.¶ (C) In addition to other provisions of this Agreement, the amount of A&O subsidy may be adjusted to a level that FCIC determines to Deleted: i be equitable if issuing or servicing eligible crop insurance contracts involves expenses that vary significantly from the basis used to determine the A&O subsidy under this section. 19 DB04/763432.0030/2554262.1 WP08 RED-LINED VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

[Note: Subparagraphs (D) and (E) are deleted because the questions raised in the Formatted: Indent: Left: 0.5", Line spacing: discussion paper concerning the “soft” cap on agent commissions are yet to be answered.] single, No bullets or numbering

(D) The SSNs of all agents of record and loss adjusters must be Deleted: <#>Except as provided in subparagraph (E), compensation paid by provided to FCIC in accordance with procedures. If the applicable the Company for the direct sale and SSN is not provided for an eligible crop insurance contract, the service for each eligible crop insurance Company will not receive any reinsurance for that eligible crop contract for a reinsurance year, excluding loss adjustment, shall not exceed 80 insurance contract until the appropriate SSN is provided. percent of the total A&O subsidy or CAT LAE associated with such contract paid under subparagraph (B), excluding any (3) CAT Loss Adjustment Expense amount paid under subparagraph (B)(vii).¶ <#>The Company may provide FCIC will pay to the Company on the monthly settlement report an compensation to an affiliate in excess of the limitation provided in subparagraph amount equal to 6.0 percent of net book premium for CAT eligible crop (D), if such compensation to all affiliates insurance contracts. in total is:¶ <#>In the form of profit sharing, which is limited to the amount not to (b) Administrative Fees exceed the underwriting gain paid under section II.(b)(7) the previous reinsurance year less any amounts The Company shall remit to FCIC all administrative fees collected in accordance obligated from reinsurance with the applicable eligible crop insurance contract and the following: arrangements;¶ <#>Included in the Company’s Plan of Operation, or an amendment to the (1) In the event the policyholder is a limited resource farmer as defined in the Plan of Operation as applicable, for the regulations, the Company shall submit the required information to FCIC reinsurance year in which the compensation is to be paid and such and FCIC shall waive the applicable fees on the monthly settlement report. Plan of Operation or amendment is approved by FCIC prior to the payment of such compensation. The (2) The Company must terminate eligible crop insurance contracts if Plan of Operation or amendment must administrative fees are not paid by the date specified in the applicable identify:¶ eligible crop insurance contract for CAT coverage and report such <#>The affiliates being compensated;¶ termination to FCIC in accordance with procedures. <#>The reinsurance year the profit was earned and the amount of such profit; and¶ (3) FCIC will perform debt collection activities for CAT administrative fees <#>The amount or percentage of that have not been timely paid. profit being compensated to such affiliates.¶ (c) Payments Deleted: A Deleted: R (1) All payments due FCIC from the Company will be netted on the monthly Deleted: , and annual settlement reports with amounts due the Company from FCIC. Formatted: Line spacing: single FCIC will remit amounts due the Company by electronic funds transfer Deleted: as applicable, who perform (EFT) on or before the FCIC payment date. Any amounts due FCIC or the any service or related activity under an Company that are not timely remitted are subject to the interest rate eligible crop insurance contract, provisions contained in section IV.(c), with such interest accruing from the Deleted: the adjusted date such payment was due to the date of payment. Deleted: calculated in accordance with section III.(a)(2)(B)(ii) (2) In the event that FCIC erroneously rejects data that was correctly submitted by the Company and a payment would be due to the Company if the data had not been rejected, the Company shall be entitled to interest accrued on this amount for the period of such delay, at the rate provided in section IV.(c)(1). 20 DB04/763432.0030/2554262.1 WP08 RED-LINED VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

(3) Any funds paid by the Company to FCIC in the compromise and settlement of any dispute between FCIC and the Company in an amount less than FCIC claimed was due will be included on the monthly settlement report without regard to the provisions of sections II.(B).

(4) Notwithstanding any other provision of this Agreement, if a review or examination reveals that the Company or its affiliates have committed a Deleted: an material error or omission or materially failed to comply with a term of the Act, this Agreement, regulations, or procedures, FCIC must provide written notice to the Company within 3 years of the end of the insurance period when the error, omission or failure occurred, if the Company owes a debt to FCIC, unless the error, omission or failure was willful or intentional. The failure to provide timely notice required herein shall only relieve the Company from liability for the debt owed and not for other consequences of the error, omission or failure that address other obligations of the Company, including maintaining a satisfactory performance record. Written notice to the Company under this paragraph must:

(A) Describe the failure regarding compliance with a specified term of the Act, this Agreement, the regulations, or procedures;

(B) State that such failure results in an amount being owed to FCIC;

(C) Include the crop year and eligible crop insurance contract number(s) for which such failure occurred; and

(D) Provide sufficient detail to put the Company on general notice of the type of error, omission or failure alleged (such as failure to properly calculate the approved yield or failure to conduct a pre- acceptance inspection, etc.).

(5) The Company must provide written notice, in a form similar to the notice in paragraph (4), to FCIC of any claim that funds may be owed from FCIC to the Company within 3 years after annual settlement of the reinsurance year in which such funds are claimed to be owed. Failure to provide such notice shall relieve FCIC of the obligation to repay any amount that would be owed to the Company. If an investigation by FCIC determines that funds may be owed by FCIC to the Company, written notice does not need to be provided.

SECTION IV. GENERAL PROVISIONS

(a) Collection of Information and Data

(1) The Company is required to collect and provide to FCIC all SSNs or EINs that are required to be submitted by the policyholder under the eligible 21 DB04/763432.0030/2554262.1 WP08 RED-LINED VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

crop insurance contract, and the SSNs of all employees and affiliates as Deleted: and other persons required by procedures. SSNs or EINs shall be protected, as prescribed in the Privacy Act of 1974 (5 U.S.C. § 552a), by the Company and all of its affiliates with access to such information. [Note: Reference to FISMA Deleted: , has been moved to IV. (a) (4).] Moved down [1]: in accordance with the Federal Information Security Management Act (FISMA) (44 U.S.C. § 3541). (2) In accordance with section 502(c) of the Act (7 U.S.C. § 1502(c)), neither the Company, nor its personnel, or contractors, or affiliates may disclose to the public any information provided by the policyholder unless such disclosure is otherwise required by Federal law.

(3) All persons who have access to Protected Information or Personally Identifiable Information, including but not limited to, personnel, contractors, service providers and affiliates of the Company, must sign a non-disclosure statement, in accordance with reporting and certification requirements contained in section XV of Appendix I.

(4) The Company and all of its affiliates shall secure all Protected Information Deleted: protect and records by developing,, implementing, and maintaining information controls and systems in a manner consistent with the Federal Information Moved (insertion) [1] Security Management Act (FISMA) (44 U.S.C. § 3541) or any Federal law Deleted: in accordance with covering Federal crop insurance information. The Company shall make Deleted: .FISMA available audit and assessments examining its Information Technology security, both internal and external, to FCIC upon request.

(5) The Company shall report any loss of Protected Information or Personally Deleted: or potential loss Identifiable Information to FCIC within one hour of determining a loss of Deleted: discovery of the such information. Deleted: or potential loss (b) Reports

(1) The Company is required to collect, maintain, and submit to FCIC data that FCIC reasonably determines is necessary to the operation of the Federal crop insurance program. Data the Company is required to submit to FCIC must be accurate, detailed and submitted to FCIC in accordance with Appendix III. Data to be submitted includes: Deleted: procedures

(A) Information each policyholder is required to report under eligible crop insurance contracts of the Company reinsured under this Agreement as specified in procedures, and

(B) Information required herein under this SRA and its Appendicies.

(2) Unless specifically approved by FCIC in writing, FCIC will reject any eligible crop insurance contract first submitted by the Company after the Deleted: originally annual settlement. Deleted: February monthly transaction cutoff date following the reinsurance year. 22 DB04/763432.0030/2554262.1 WP08 RED-LINED VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

(3) Producer premiums and administrative fees collected by the Company must be reported to FCIC in accordance with Appendix III.

(4) [Note: Based on the proposed text of (1), this provision is redundant.]In Deleted: The Company shall provide information to FCIC relating to eligible crop addition to any other reporting requirement, the Company must report the insurance contracts of the Company following information regarding each eligible crop insurance contract and reinsured under this Agreement as specified have such information be accepted by FCIC not later than the applicable herein and in Appendix III. date specified in paragraph (5): Deleted: ¶ Deleted: 6 (A) All names, SSNs, and EINs the policyholder is required to report under the eligible crop insurance contract;

(B) The agricultural commodity to be insured under the eligible crop insurance contract; and

(C) The plan of insurance and coverage level, including the price election, elected by the eligible producer.

23 DB04/763432.0030/2554262.1 WP08 RED-LINED VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

(5) Information specified in paragraph (4) must be accepted by FCIC not later Deleted: 5 than:

(A) In cases of written agreements requiring annual FCIC approval or for the initial year of a written agreement (unless otherwise specified in Appendix III), not later than the transaction cutoff date for the week containing the 30th calendar day after FCIC approval;

(B) For any renewal or multi-year written agreement (unless otherwise specified in Appendix III), the transaction cutoff date for the week containing the 30th calendar day after the sales closing date for the eligible crop insurance contract;

(C) For any agricultural commodity without a fixed sales closing date:

(i) For the initial year of application, the later of the transaction cutoff date for the week containing the 30th calendar day after the eligible producers signature date, or the transaction cutoff date for the week containing the 30th calendar day after the cancellation date;

(ii) For any subsequent year of insurance, the transaction cutoff date for the week containing the 30th calendar day after the cancellation date; and,

(D) For all other eligible crop insurance contracts not covered in subparagraphs (A) through (C), the transaction cutoff date for the week including the 30th calendar day after the sales closing date for the eligible crop insurance contract.

(6) The A&O subsidy applicable to the eligible crop insurance contract determined in accordance with section III.(a)(2) will be reduced whenever the information required by paragraph (4) has not been accepted by FCIC Deleted: 5 or such information is revised after the deadlines set forth in paragraph (5). Deleted: 6

(A) The A&O subsidy for the eligible crop insurance contract will be reduced by:

(i) 1 percentage point if the required information is first accepted or revised after the deadline set forth in paragraph Deleted: transaction cut-off date for the week containing the 30th calendar (5),but prior to the weekly transaction cut-off date day after the sales closing date, including the 30th calendar day following the deadline set Deleted: for the week containing the forth in paragraph (5); or 60th

24 DB04/763432.0030/2554262.1 WP08 RED-LINED VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

(ii) 2 percentage points if the required information is first accepted or revised after the weekly transaction cut-off date including the 30th calendar day following the deadline Deleted: for the week containing the set forth in paragraph (5), , but prior to the weekly 60th transaction cut-off date for the week including the 60th Deleted: after the sales closing date calendar day following the deadline set forth in paragraph Deleted: containing (5); or Deleted: 90th

(iii) 3 percentage points if the required information is first accepted or revised after the weekly transaction cut-off date including the 60th calendar day following the deadline Deleted: for the week containing set forth in paragraph (5). Deleted: 90th Deleted: after the sales closing date (B) The sanctions under this paragraph may be reduced or waived if the delay is caused in whole or in part by FCIC.Any amount Deleted: ¶ collected under this paragraph will be placed in the Contingency Fund.

(C) If the eligible crop insurance contract or procedures allow the policyholder to make an election of, or change to, any information required to be reported under paragraph (4) after the deadline set forth in paragraph (5), the A&O subsidy reduction in paragraph (6)(A)(i) will not apply for that eligible crop insurance contract until the weekly transaction cutoff date including 30 days after the date the policyholder is required to make such designation, and the dates in paragraph (6)(A)(ii) and (iii) are adjusted accordingly.

(7) The Summary of Coverage and billing statement provided to the policyholder shall prominently display each of the following:

(A) The total premium calculated by adding subparagraphs (B) and (C) below;

(B) The risk subsidyand A&O subsidy paid by FCIC to the Company Deleted: , on behalf of the policyholder; Deleted: and

(C) The amount of premium and any administrative fees due the Company from the policyholder; and Deleted: .

(D) When the A&O subsidy amount is contingent on the loss ratio in the state, the A&O subsidy displayed pursuant to clause (B) shall be the applicable amount in Section III (a)(2)(B)(iv) or (v), but shall contain an asterisk and a footnote stating “*Note: This amount may increase by 1.15 percent of net book premium if the loss ratio in the state exceeds 1.20. However, the amount of premium the producer must pay will not change.”. Alternatively a

25 DB04/763432.0030/2554262.1 WP08 RED-LINED VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

dollar amount equivalent to 1.15 percent of net book premium may be substituted in this footnote.

[Note: (D) is based on IS – 08 – 2009. Its inclusion means that all required billing Deleted: MGR statement items are set forth in one location.] Formatted: Indent: Left: 1", Line spacing: single, No bullets or numbering Deleted: - Deleted: 09 Deleted: ___. Deleted: <#>All data on which liabilities and premiums are based must be reported by the Company and accepted by FCIC not later than the transaction cut-off date for the 6th week after the week that includes the latest acreage reporting date specified in the actuarial data master file for any eligible crop insurance contract insured by the policyholder. The A&O subsidy for eligible crop insurance contracts under this Agreement will be reduced if the data is not reported and accepted by FCIC, unless the failure to report or accept is caused in whole or in part by FCIC, as follows:¶ Data Received During Weeks ... [18] Formatted: Line spacing: single Deleted: ¶

26 DB04/763432.0030/2554262.1 WP08 RED-LINED VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

(c) Interest

(1) Any interest that FCIC is required to pay the Company under the terms of this Agreement will be paid in accordance with the interest provisions of the Contract Disputes Act (41 U.S.C. §§ 601 et seq.).

(2) Any interest that the Company is required to pay FCIC under the terms of this Agreement will be paid at a simple interest rate equal to the 13 week Deleted: the rate on Treasury bills (at the date when payment is due plus 3 percentage Deleted: of 15 percent points per annum.

(3) The Company will repay with interest any amount paid to the Company by FCIC that FCIC or the Company subsequently determines was not due.

(4) FCIC will repay with interest any amount paid by the Company to FCIC, which FCIC subsequently determines was not due.

(5) Interest on amounts determined not to be due will begin to accrue on the 31st day after the date that:

(A) In the case of amounts owed to the Company, a written notification stating the amount claimed to be owed is provided to FCIC by the Company, as applicable, and end on the date the amount is paid in full; or

(B) In the case of amounts owed to FCIC, the Company receives a final determination from FCIC or other written statement from FCIC that a specific amount is owed, as applicable, and end on the date the overpaid amount is paid in full. Appeal by the Company under this Agreement or 7 C.F.R. § 400.169 does not delay the date by which interest starts to accrue.

(d) Escrow Account

(1) At the Company's request, FCIC will allow the Company to establish an escrow account in the name of FCIC at a bank designated by the Company, and approved by FCIC, to reimburse the Company for payment of indemnities, prevented planting payments or replant payments to policyholders by the Company. The Company's bank must pledge collateral as required by 31 C.F.R. § 202 in the amount determined by FCIC.

(2) When an escrow account has been established, the Company may request FCIC to fund the escrow account after the Company has drafted a check or Deleted: mailed scheduled an EFT transaction to pay the indemnity, prevented planting Deleted: processed payment, or replant payment to a policyholder. A request to fund the Deleted: electronic funds transfer escrow account shall be submitted in accordance with 27 DB04/763432.0030/2554262.1 WP08 RED-LINED VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

Appendix III. A request submitted to FCIC shall be deemed certified by an authorized officer or authorized employee of the Company that the information in the escrow account funding request is correct and accurate. Deleted: establishing the claim

(3) Any Company that elects not to utilize escrow funding will be reimbursed for paid losses validated and accepted on the monthly settlement report.

(4) The Company’s bank may only draw funds from the escrow account when the instrument or document issued as payment of the indemnity, prevented planting payment or replant payment has cleared the Company’s bank account.

(5) If there is a shortfall of funds in the escrow account, it is the Company’s responsibility to deposit funds to cover any shortages.

(e) Supplemental Insurance

(1) The Company shall not sell a contract of insurance or similar instrument, which is written in conjunction with an eligible crop insurance contract and not reinsured by FCIC, unless the Company has complied with the requirements of 7 C.F.R. § 400.713.

(2) FCIC will not provide reinsurance for an eligible crop insurance contract if the Company sold a contract of insurance or instrument described in paragraph (1) that FCIC determines to have shifted risk to, or increases the risk of, such eligible crop insurance contract reinsured under this Agreement, or if the Company administers such insurance or instrument in a manner inconsistent with information submitted in accordance with 7 C.F.R. § 400.713.

(3) The Company must maintain, and make available at the request of FCIC, the underwriting information pertaining to a contract of insurance or instrument described in paragraph (1), including the policy number and all SSNs and EINs related to the eligible crop insurance contract.

(4) If the terms of a contract of insurance or instrument described in paragraph (1) become inconsistent with the terms of the eligible crop insurance contract causing payments to be made under the eligible crop insurance contract that would not otherwise be payable, reinsurance will be denied.

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(f) Insurance Operations

(1) General

(A) The Company must verify yields and other information used to establish insurance guarantees and indemnity payments in accordance with the regulations and procedures.

(B) The Company must use contracts, standards, procedures, methods, and instructions as authorized by FCIC in the sale and service of eligible crop insurance contracts.

(C) The Company must comply with standards and procedures to create forms used in the sales and service of any eligible crop insurance contract.

(2) Plan of Operations

(A) The Company’s complete Plan of Operations must be submitted to FCIC by April 1 preceding the reinsurance year, unless otherwise authorized by FCIC. The Plan of Operations must meet the requirements of this Agreement, including the format and all requirements specified in Appendix II, to be considered a complete Plan of Operations.

(B) The Plan of Operations contains integral terms to this Agreement so no Agreement exists for a reinsurance year until the Plan of Operation has been approved by FCIC. Once approved by FCIC, the Company’s Plan of Operations becomes an Appendix to the Agreement.

(C) If the Plan of Operations is not approved by FCIC by the July 1 start of the reinsurance year:

(i) FCIC shall, at its sole discretion, provide the Company with written notice:

(I) Agreeing to reinsure and pay CAT LAE, A&O subsidy and risk subsidy for eligible crop insurance contracts that are renewed or sold by or on behalf of the Company while FCIC continues its evaluation of the Plan of Operations: or

(II) Directing the Company and any of its service providers and agents to cease the renewal or sale of eligible crop insurance contracts until FCIC

29 DB04/763432.0030/2554262.1 WP08 RED-LINED VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

determines whether to approve or disapprove the Plan of Operations.

(ii) Any eligible crop insurance contract sold or renewed after FCIC has provided written notice that the Company must cease the renewal or sale of eligible crop insurance contracts until FCIC determines whether to approve or disapprove the Plan of Operations will not be provided reinsurance, A&O subsidy, CAT LAE, or risk subsidy.

(iii) If FCIC authorizes the continued renewal or sale of eligible crop insurance contracts by or on behalf of the Company while FCIC completes its evaluation of the Plan of Operations and:

(I) Approves the Plan of Operations, the renewed and sold eligible crop insurance contracts will be reinsured under the newly approved Plan of Operations; or

(II) Disapproves the Plan of Operations, the eligible crop insurance contracts renewed or sold during the evaluation period will be transferred to FCIC and will be processed in accordance with section IX of Appendix I.

(D) The Company shall be in compliance with the Freedom to E-File Act and section 508 of the Rehabilitation Act. The Company must file its plan for meeting the requirement of these statutory provisions, in accordance with procedures, with the Plan of Operations, as specified in Appendix II. Deleted: .

(g) Access to Records and Operations

(1) Upon written request, unless otherwise authorized by the FCIC Manager, the Company must provide FCIC reasonable access to its offices, personnel, and all records that pertain to the business conducted under, or the requirements contained in, this Agreement, including reasonable access to records on the operation of the Company, during normal business Deleted: at any time hours.

(2) The Company shall enter into and enforce agreements to ensure that its Deleted: , affiliates provide FCIC and the Company with reasonable access to its affiliates’ offices, personnel, and all records that pertain to the business conducted under, or the requirements contained in, this Agreement, including reasonable access to records on the operation of such affiliates Deleted: , at any time during normal business hours. 30 DB04/763432.0030/2554262.1 WP08 RED-LINED VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

(3) The Company must designate in its Plan of Operations where the records pertaining to the business conducted under this Agreement are located. In the case of electronic records, the location of computers or servers may be deemed the designated location.

(4) Records described in this subsection must be retained until 3 years after the annual settlement date for the applicable reinsurance year or until 3 Deleted: last day on which records may be submitted through automated systems in years after the end of the insurance period of the specific eligible crop accordance with Appendix III insurance contract, whichever is later. [Note: This language comes from the current SRA and remains appropriate.]

(5) FCIC may require the Company and its affiliates to retain certain specified records for a longer period than in paragraph (4) if it so notifies the Company in writing at any time before the expiration of the applicable 3- year period. If the applicable 3-year period has expired and the Company or its affiliate still has the records in their possession, FCIC can require that such records be retained for a longer period by providing written notice.

(6) Notwithstanding paragraph (4), records regarding an unsatisfied debt of a policyholder must be retained until the debt is satisfied or is discharged through bankruptcy proceedings.

(7) For the purpose of this subsection the term “FCIC” includes all U.S. Government agencies including but not limited to USDA Office of Inspector General, the Government Accountability Office, and the Department of Labor.

(h) Compliance and Corrective Action

(1) The Company and its affiliates must comply with the provisions of this Agreement, as applicable. The Company is solely responsible for the conduct and performance of its personnel and affiliates with respect to the obligations imposed by this Agreement and the procedures. Liability for damages incurred, to the extent it is caused by an error or omission or failure to comply with this Agreement or the procedures, is the sole responsibility of the Company. The assumption of liability under this section is only for the purpose of this Agreement and may not be relied upon by any person or entity not a part to this Agreement for any purpose.

(2) In addition to paragraph (1), the Company and its affiliates must comply with the procedures, and the applicable laws of the States in which the Company is conducting business under this Agreement, unless preempted in accordance with section IV.(o).

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(3) The Company must fully cooperate with FCIC in the review or examination of the Company or its affiliates regarding compliance with the requirements of the Agreement and procedures. The Company will

include in its agreements with its affiliates provisions that ensure that such affiliates agree to cooperate and assist FCIC in the reviews and examinations conducted in accordance with this Agreement.

(4) In addition to any other remedies available under this Agreement, if FCIC finds that the Company has not complied with a provision of this Agreement, and the Company has not taken appropriate steps to correct the reported act of non-compliance, FCIC may, at its sole discretion, require that the Company take corrective action within 45 days of the date of such written demand. The Company must provide FCIC with satisfactory documentary evidence of the corrective action taken to address the reported act of non-compliance.

(5) If a State makes a determination that the Company or its affiliates are not in compliance with state law and FCIC determines such non-compliance is material to the Company’s obligations under this Agreement, and all appeals have been exhausted, FCIC shall take remedial actions, which may include suspension or termination of this Agreement in accordance with section IV.(i) and (j), denial of reinsurance, in whole or in part, depending on the materiality or severity of the non-compliance.

(6) In addition to any other remedies in this Agreement, if FCIC determines that the Company or its affiliate willfully violated the Agreement or the procedures, FCIC reserves the right to deny reinsurance for any insurance contract that is sold or serviced in violation of the terms of this Agreement or procedures.

(7) Whenever a failure to comply with a provision of this Agreement or procedures by the Company or its service providers, agents, and loss adjusters materially affects the existence or amount of the indemnity, prevented planting payment, replant payment or premium for an eligible Deleted: or crop insurance contract (including but not limited to incorrect APH calculations; improper adjustment of losses; sales agents or sales supervisors involved in the adjustment of losses; failure to verify eligibility for insurance, acreage planted, or prevented from planting, insurable shares, insurable causes of loss, or unit division) and FCIC is:

(A) Able to determine the correct amount of indemnity, prevented planting payment, replant payment, or premium, FCIC, except as Deleted: or provided in paragraph (8)(A), may deny A&O subsidy, CAT LAE, Deleted: shall and risk subsidy or reduce the A&O subsidy or CAT LAE for the eligible crop insurance contract based on the severity of the failure, and require the Company: 32 DB04/763432.0030/2554262.1 WP08 RED-LINED VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

33 DB04/763432.0030/2554262.1 WP08 RED-LINED VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

(i) To report to FCIC through PASS the correct amount of indemnity, prevented planting payment, replant payment, and premium;

(ii) To pay to the policyholder any amount of underpaid indemnity, prevented planting payment, replant payment, or overpaid premium; and

(iii) To pay to FCIC any overpaid indemnity, prevented planting payment, replant payment, or underpaid premium and any subsidy that exceeds the amount the Company or policyholder was entitled to receive.

(B) Unable to determine the correct amount of indemnity, prevented planting payment, replant payment, or premium that should have been paid, FCIC may deny reinsurance, in whole or in part, based Deleted: will on the severity of the failure, unless the Company can provide documentary evidence satisfactory to FCIC that shows the correct amount of the indemnity, prevented planting payment, replant payment, or premium.

(8) The Company provides valuable program delivery services for which payment is made in the form of A&O subsidy and CAT LAE. FCIC and the Company agree that FCIC is damaged by a material failure of the Company or its service providers, agents, and loss adjusters to provide services or to comply with a provision of this Agreement or procedures, and that the value of such service or failure to comply is difficult to determine because the damages are uncertain and the amount of service or failure to comply is difficult to quantify. The amounts stated below shall Deleted: FCIC and the Company agree that in view of the difficulty of determining be used as reasonable estimates of the value. In the event there is a pattern the value of such service, t or practice of failing to comply with the Agreement or procedures and FCIC has determined the Company or its service providers, agents, and Deleted: are loss adjusters have failed to provide services or to comply with a provision Deleted: has of this Agreement or procedures and such failure has occurred:

(A) During the claims process (such as loss adjustment, quality control Deleted: During the sales and service, claims, or operations process, the reviews, verification of applicable information, etc.), the Company Company agrees to pay FCIC an amount agrees to pay FCIC an amount up to 5 percent of the net book up to the entire A&O subsidy or CAT premium on all crop insurance contracts affected by the failure LAE, as applicable, on all crop insurance contracts affected by the failure based on based on the materiality or severity of the failure; the materiality or severity of the failure, as determined by FCIC; and (B) During the sales and service of the crop insurance contract, excluding the claims process contained in subparagraph A., the Company agrees to pay FCIC an amount up to 5 percent of the net Deleted: 15 book premium on all crop insurance contracts affected by the failure based on the materiality or severity of the failure;

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[Note: With A&O on some policies, in particular area plans, less Formatted: Indent: Left: 2", Line spacing: than 15% of net book premium, the liquidated damage amount single, No bullets or numbering, Tab stops: 2", Left must be below A&O.]

(C) FCIC may impose the remedies in both subparagraphs (A) and (B), Formatted: Line spacing: single if applicable (however, both remedies may not be imposed for the same conduct by the same person); and

(D) If a pattern or practice under this paragraph also involves overpaid indemnities that may be collected under paragraph (7)(A), any reduction in A&O subsidies and CAT LAE will be imposed under this paragraph, not paragraph (7)(A).

(9) Failure of the Company or its affiliates to cease or desist any activity or to take a specific action, as required by FCIC in writing, will subject the Company or its affiliates to the sanctions in section 515(h) of the Act (7 U.S.C. 1515(h)).

(10) Any payment due from, or paid by, the Company under this subsection shall be in addition, and without prejudice, to any other rights of FCIC, or the United States. FCIC may, at its sole discretion, waive, reduce or delay repayment if such actions are needed for continued delivery of the program.

(11) Failure of the Company to make payment in accordance with the provisions of this Agreement, or with provisions of any separate written agreement to make such payment between the Company and FCIC, shall subject the Company to the remedies available under this Agreement.

(12) Nothing in this subsection prevents FCIC from suspending or terminating this Agreement in accordance with section IV.(i) and (j).

(13) Any A&O subsidies and CAT LAE collected under this subsection will be placed in the Contingency Fund.

(14) Nothing in this Agreement precludes the government from taking any actions authorized by law relating to fraud, waste, or abuse. Deleted: and

(i) Suspension

In addition to the other remedies available in this Agreement, FCIC may suspend this Agreement for cause due to a material breach or failure to perform or comply with obligations under this Agreement. If this Agreement is suspended for cause:

(1) Except as provided in paragraph (3), the suspension will remain in effect until FCIC determines that the error or omission has been corrected and that steps have been taken to prevent its occurrence.

35 DB04/763432.0030/2554262.1 WP08 RED-LINED VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

(2) While suspended, the Company shall not, as determined by FCIC:

(A) Sell, or authorize to be sold, any new crop insurance contracts;

(B) Renew, or authorize the renewal of, existing eligible crop insurance contracts; or

(C) Service any eligible crop insurance contracts in effect at the time of the suspension (A&O subsidy and CAT LAE will continue to be paid only for those eligible crop insurance contracts that FCIC requires to be serviced).

(3) If the eligible crop insurance contracts are not serviced as required by paragraph (2)(C), or errors or omissions are not corrected within the timeframe specified by FCIC, the suspension will remain in effect and this Agreement will automatically terminate at the end of the reinsurance year, or an earlier date if notice of termination is provided by FCIC, and A&O subsidy and CAT LAE will be denied.

(4) Notwithstanding any other provision of this Agreement, during the period of suspension, the Company may submit a request to FCIC for approval by FCIC to not renew some or all of the existing eligible crop insurance contracts. Each request must contain supporting documentation stating the basis for the request and the proposed implementation of the request.

(5) Any eligible crop insurance contract that is sold or renewed if precluded by FCIC, while this Agreement is suspended will not receive reinsurance, A&O subsidy, CAT LAE or risk subsidy for such eligible crop insurance contracts.

(6) Any eligible crop insurance contract not renewed in accordance with this subsection must be canceled in accordance with the terms of the eligible crop insurance contract not later than 15 days before the next applicable cancellation date.

(j) Termination

(1) Notwithstanding any other provision of this Agreement, FCIC may terminate this Agreement for cause due to a material failure to perform or comply with this Agreement or the procedures, or for the convenience of the government.

(2) Termination will be effective on the date specified by FCIC but under no circumstances will it be after the last day of the reinsurance year.

(3) If this Agreement is terminated, FCIC will not provide reinsurance for eligible crop insurance contracts issued or renewed after the date of the

36 DB04/763432.0030/2554262.1 WP08 RED-LINED VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

termination. Except as otherwise provided in this Agreement, FCIC will provide reinsurance in accordance with the terms of the Agreement, for eligible crop insurance contracts in effect as of the date of the termination until the next cancellation date for the eligible crop insurance contract.

(4) (4) In addition to any other reductions provided in the Agreement, if this Agreement is terminated by FCIC for cause, the Company shall pay FCIC an amount not greater than 10 percent of the net book premium for all eligible crop insurance contracts in its book of business based on the materiality or severity of the cause. All amounts collected under this paragraph will be placed in the Contingency Fund.

(5) After termination of this Agreement, unless otherwise specified in this Agreement, all of the Company’s eligible crop insurance contracts in its book of business must be cancelled in accordance with the terms of such contract not later than 15 days before the next applicable cancellation date.

(k) Disputes and Appeals

(1) If the Company disputes an action, finding, or decision of FCIC under this Agreement, the Company must seek a final administrative decision regarding such action, finding, or decision in accordance with the provisions of 7 C.F.R. § 400.169 before seeking judicial review.

(2) If the Company seeks a final administrative decision or reconsideration in accordance with 7 C.F.R. § 400.169, FCIC shall, in most cases, issue a fully documented decision within 90 days of the receipt of a notice of dispute accompanied by all information necessary to render a decision. If a decision cannot be issued within 90 days, FCIC will notify the Company within the 90-day period of the reasons why such a decision cannot be issued and when it will be issued.

(l) Agreement Change Date

(1) This is a single year Agreement that ends June 30 of the reinsurance year. The Company can enter into a new Agreement under the terms and conditions that exist as of March 15 preceding the reinsurance year by filing a Plan of Operations and obtaining approval from FCIC.

(2) If Congress enacts legislation on or before June 30 that will affect the terms of the Agreement for the next reinsurance year, the Company may, within 15 days of the date of enactment,:

(A) Withdraw its Plan of Operations; or

(B) Amend its Plan of Operations, according to procedures.

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(m) Funding Contingency

If Congress makes any change in law that will affect the amount of funds authorized to be paid under this Agreement, the affected provisions in this Agreement will be automatically revised to reflect such change in funding. Under no circumstance may a payment be made under this Agreement that is in excess of the amount authorized by law at the time such amount may be owed.

38 DB04/763432.0030/2554262.1 WP08 RED-LINED VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

(n) Previous Obligations

Any obligations continuing under any previous Agreement will remain subject to the terms and conditions of such previous Agreement.

(o) Preemption of State Law

(1) In accordance with section 506(l) of the Act (7 U.S.C. § 1506(l)), all Deleted: the provisions of State or local law that otherwise may apply to this Agreement , or to the Company’s performance hereunder, are preempted, Deleted: that are inconsistent with provisions of State or local law will excepting only: supersede such law to the extent of the inconsistency (A) State insurance laws with respect to licensing of agents, financial Deleted: . safety and soundness, and supplemental insurance or other insurance not Formatted: Heading 4, Indent: Left: 1.5", reinsured by FCIC. Line spacing: single, Tab stops: 1.5", List tab

(B) State and local laws and codes with respect to public safety and welfare, including, but not limited to, those concerning building and occupancy; and

(C) State and local laws and codes with respect to employment safety, security, and non-discrimination (except to the extent otherwise preempted by federal law).

(2) The provisions of 7 C.F.R. part 400, subpart P pertaining to preemption of Formatted: Line spacing: single State or local laws or regulations are specifically incorporated herein and made a part hereof.

(3) No assessment for any guarantee funds or similar programs may be computed or levied on the Company by any State for or on account of any premiums payable on eligible crop insurance contracts reinsured under this Agreement.

(4) No State or local regulatory authority, including without limitation a State’s insurance commissioner, department, or comparable public authority, may enforce or seek to enforce any provision of the Act, the regulations, this Agreement, or any procedures, without the prior written consent of FCIC.

(5) Irrespective of any State notice requirements, if a Company elects to Deleted: s discontinue offering a Plan of coverage, coverage on a specific crop, or coverage in a state, the Company is only required to provide 30 days notice to affected policyholders and is not required to pay any renewal commissions to agents.

(p) Discrimination

39 DB04/763432.0030/2554262.1 WP08 RED-LINED VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

The Company shall not discriminate against any employee, applicant for employment, insured, applicant for insurance, or potential applicant for insurance because of race, color, national origin, religion, sex, age, disability, marital status, or in retaliation for exercising his or her rights under applicable Federal law. The Company shall be in substantial compliance with all applicable Federal laws prohibiting discrimination.

(q) Set Off

(1) Funds due from the Company may be set off under the provisions of this Agreement or under the provisions of 31 U.S.C. chapter 37.

(2) Any amount due the Company under this Agreement is not subject to any lien, attachment, garnishment, or any other similar process prior to that amount being paid under this Agreement, unless such lien, attachment, or garnishment arises under title 26 of the United States Code.

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(3) Set off as provided in this section will not deprive the Company of any right it might otherwise have to contest the indebtedness involved in the set off action by administrative appeal.

(4) In the event a Company fails to pay any amount when due under this Agreement, any further payments to the Company from FCIC will be set off against any amounts due FCIC regardless of the reinsurance year until such amounts are paid with appropriate interest.

(5) Notwithstanding an assignment made in accordance with section IV.(r), FCIC may set off:

(A) Any amount due FCIC under this Agreement;

(B) Any amounts for which the Company is indebted to the United States for taxes for which a notice of lien was filed or a notice of levy was served in accordance with the provisions of the Internal Revenue Code of 1986 (26 U.S.C. 6323), or any amendments thereto or modifications thereof, before acknowledgment by FCIC of receipt of the notice of assignment; and

(C) Any amounts, other than amounts specified in subparagraphs (A) and (B) due to FCIC or any other agency of the United States, if FCIC notified the assignee of such amounts to be set off at or before the time acknowledgment was made of receipt of the notice of assignment.

(r) Assignment

(1) No assignment by the Company shall be made of the Agreement, or the rights thereunder, unless:

(A) The Company assigns the proceeds of the Agreement to a bank, trust company, or other financing institution, including any federal lending agency, or to a person or firm that holds a lien or encumbrance at the time of assignment; and

(B) The Company receives the prior approval of FCIC to assign the proceeds of this Agreement to any other person or firm.

(2) Any assignment made under paragraph (1):

(A) Will be recognized only if and when the assignee thereof files with FCIC a written notice of the assignment together with a signed copy of the instrument of assignment;

41 DB04/763432.0030/2554262.1 WP08 RED-LINED VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

(B) Must cover all amounts payable and not already paid under the Agreement;

(C) Shall not be made to more than one party; and

(D) Shall not be subject to further assignment, except that any such assignment may be made to one party as agency or trustee for two or more parties.

(s.) Informal Resolution Formatted: Indent: Left: 0.5", No bullets or numbering, Tab stops: 0.5", Left If the Company disagrees with an act or omission of FCIC, except those acts implemented through the rulemaking process, the Company shall provide written notice of such disagreement to the Manager of FCIC. Within 10 business days of receipt of notice, the Manager or a designee shall schedule a meeting with the company in an attempt to resolve the disagreement. Notwithstanding any other provision in this section, any subsequent decision by FCIC on the act or omission will be considered a final administrative determination of FCIC and, therefore, subject only to review by the Board of Contract Appeals, with respect to a matter relating to this Agreement, or to judicial review. Nothing herein excuses the Company's performance under this Agreement during the attempted resolution of the dispute or constitutes a waiver of the Company’s right to any remedy authorized by law. Formatted: Indent: Left: 0" (t.) Interpretation of FCIC Procedures

If the Company identifies issues related to program integrity concerns involving FCIC procedures, vulnerabilities, or ambiguities in FCIC procedures, or conflicting applications of FCIC procedures among AIPs, the Company may provide written notice to FCIC of such issues, along with the Company’s proposed interpretation of the FCIC procedure at issue. Within 30 days of receipt of such notice, FCIC shall issue an interpretation in the form of a bulletin or other written guidance which specifically addresses and resolves the issue or issues identified by the Company. If FCIC fails to provide such an interpretation within 30 days, the Company may presume that its proposed interpretation is correct. Formatted: Indent: Left: -0.31", Hanging: 0.81", Line spacing: single, No bullets or (u.) Transitional Implementation numbering, Tab stops: 0.5", Left + 1", Left Formatted: Font: Bold This Agreement contains various obligations of the Company that cannot be met Formatted: Font: Bold as of July 1, 2010. Accordingly, transitional implementation is appropriate as Formatted: Font: Not Bold follows:

(1) Starting with the 2012 reinsurance year, the obligations in ______Formatted: Indent: Left: 1", Hanging: 0.5", Line spacing: single, Numbered + Level: 1 + Numbering Style: 1, 2, 3, … + Start at: 1 + ______shall be met; and Alignment: Left + Aligned at: 1" + Indent at: 1.25", Tab stops: 0.5", Left + 1", Left 42 DB04/763432.0030/2554262.1 WP08 RED-LINED VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

(2) Starting with the 2013 reinsurance year, the obligations in ______

______shall be met. Formatted: Font: Bold

Formatted: Line spacing: single, Tab stops: 1", Left

43 DB04/763432.0030/2554262.1 WP08 RED-LINED VERSION OF 2011 SRA (SECOND DRAFT): 02-23-10

Certification Formatted: Line spacing: single

The undersigned acknowledges that the Company and its Board of Directors, if applicable, has authorized the Company to enter into this Agreement for the ______reinsurance year. The undersigned certifies that the information provided by the Company related to this Agreement is true and accurate and acknowledges that any misrepresentation in the submission of this Agreement and information provided by the Company related to this Agreement may result in Deleted: undersigned and the civil, administrative, or criminal liability against the Company. Deleted: ’s Formatted: None, Line spacing: single, No APPROVED AND ACCEPTED FOR bullets or numbering, Don't keep with next, Don't keep lines together THE FEDERAL CROP Formatted: Line spacing: single INSURANCE CORPORATION THE COMPANY Formatted: None, Line spacing: single, No bullets or numbering, Don't keep with next, Don't keep lines together

Formatted: Line spacing: single Signature Signature Formatted: None, Line spacing: single, No bullets or numbering, Don't keep with next, Don't keep lines together Name Name Formatted: Line spacing: single Formatted: None, Line spacing: single, No bullets or numbering, Don't keep with next, Title Title Don't keep lines together Formatted: Line spacing: single Formatted: None, Line spacing: single, No Date Date bullets or numbering, Don't keep with next, Don't keep lines together Formatted: Line spacing: single Formatted: None, Line spacing: single, No bullets or numbering, Don't keep with next, Don't keep lines together Formatted: Line spacing: single Formatted: None, Line spacing: single, No bullets or numbering, Don't keep with next, Don't keep lines together Formatted: Line spacing: single Formatted: None, Line spacing: single, No bullets or numbering, Don't keep with next, Don't keep lines together Formatted: Line spacing: single Formatted: None, Line spacing: single, No bullets or numbering, Don't keep with next, Don't keep lines together Formatted: Line spacing: single Formatted: None, Line spacing: single, No bullets or numbering, Don't keep with next, Don't keep lines together Formatted: Line spacing: single Formatted: Line spacing: single 44 DB04/763432.0030/2554262.1 WP08 Page 15: [1] Deleted NCIS 3/18/2010 12:06:00 PM Residual Fund

The Company shall retain a 50 percent interest in premium and associated ultimate net losses in the Residual Fund. The remainder is ceded to FCIC.

The Company’s retained premium and associated ultimate net losses in the Residual Fund shall be based on the sum of all eligible crop insurance contracts assigned by the Company to the Residual Fund, subject to the minimum assignments specified in paragraph (4)(B).

Commercial Fund

Retention:

The Company shall retain at least a 35 percent interest in premium and associated ultimate net losses in the Commercial Fund in each State. The remainder is ceded to FCIC.

The retention percentage for the Commercial Fund in each State must be made in 5 percent increments and designated in the Company’s Plan of Operations according to Appendix II.

Minimum assignments:

The associated net book premium of eligible crop insurance contracts assigned to the Commercial Fund shall be at least 25 percent of the Company’s net book premium in each State. Any net book premium associated with pilot programs shall not be used in determining the Company’s minimum assignment to the Commercial Fund.

In the event that the percentage of net book premium in the Commercial Fund is less than 25 percent in any State, the amount of the Company’s premium and associated ultimate net losses shall be increased to meet the requirements of clause (i).

Underwriting Loss

Commercial Fund

After the retentions and assignments under paragraph (4), the amount of underwriting loss retained by the Company will be calculated within each State as the sum of the following:

For that portion of the underwriting loss amount for which the company’s loss ratio exceeds 100 percent and is less than or equal to 160 percent, the Company shall retain an amount of the underwriting loss equal to the product of the following:

its retained net book premium;

the lesser of the Company’s actual loss ratio or 160 percent, minus 100 percent; and

the following percentage for the applicable State:

State Group 1 65.0 percent State Groups 2 and 3 45.0 percent

For that portion of the underwriting loss amount for which the company’s loss ratio exceeds 160 percent and is less than or equal to 220 percent, the Company shall retain an amount of the underwriting loss equal to the product of the following:

its retained net book premium;

the lesser of the Company’s actual loss ratio or 220 percent, minus 160 percent; and

the following percentage for the applicable State:

State Group 1 45.0 percent State Groups 2 and 3 20.0 percent

For that portion of the underwriting loss amount for which the company’s loss ratio exceeds 220 percent and is less than or equal to 500 percent, the Company shall retain an amount of the underwriting loss equal to the product of the following:

its retained net book premium;

the lesser of the Company’s actual loss ratio or 500 percent, minus 220 percent; and

the following percentage for the applicable State:

State Group 1 10.0 percent State Groups 2 and 3 5.0 percent

FCIC shall assume 100 percent of that portion of the underwriting loss amount by which the Company’s loss ratio exceeds 500 percent.

Residual Fund: The amount of the underwriting retained by the Company will be calculated as the sum of the following:

For that portion of the underwriting loss amount for which the national loss ratio for the Company exceeds 100 percent and is less than or equal to 160 percent, the Company shall retain an amount of the underwriting loss equal to the product of the following:

its retained net book premium;

the lesser of the Company’s national loss ratio or 160 percent, minus 100 percent; and

5.0 percent.

For that portion of the underwriting loss amount for which the national loss ratio for the Company exceeds 160 percent and is less than or equal to 220 percent, the Company shall retain an amount of the underwriting loss equal to the product of the following:

its retained net book premium;

the lesser of the Company’s national loss ratio or 220 percent, minus 160 percent; and

4.0 percent.

For that portion of the underwriting loss amount for which the national loss ratio for the Company exceeds 220 percent and is less than or equal to 500 percent, the Company shall retain an amount of the underwriting loss equal to the product of the following:

its retained net book premium;

the lesser of the Company’s national loss ratio or 500 percent, minus 220 percent; and

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FCIC shall assume 100 percent of that portion of the underwriting loss amount by which the national loss ratio for the Company exceeds 500 percent.

Underwriting Gain Commercial Fund

After the retentions and assignments under paragraph (4), the amount of underwriting gain retained by the Company will be calculated within each State as the sum of the following:

For that portion of the underwriting gain amount for which the company’s loss ratio is less than or equal to 100 percent but is greater than or equal to 65 percent, the Company shall retain an amount of the underwriting gain equal to the product of the following:

its retained net book premium;

100 percent minus [the greater of the Company’s actual loss ratio or 65 percent]; and

the following percentage for the applicable State:

State Group 1 75.0 percent State Groups 2 and 95.0 percent 3

For that portion of the underwriting gain amount for which the company’s loss ratio is less than 65 percent but is greater than or equal to 50 percent, the Company shall retain an amount of the underwriting gain equal to the product of the following:

its retained net book premium;

65 percent minus [the greater of the Company’s actual loss ratio or 50 percent]; and

the following percentage for the applicable State:

State Group 1 40.0 percent State Groups 2 and 40.0 percent 3

For that portion of the underwriting gain amount for which the company’s loss ratio is less than 50 percent, the Company shall retain an amount of the underwriting gain equal to the product of the following:

its retained net book premium;

50 percent minus the Company’s actual loss ratio; the following percentage for the applicable State:

State Group 1 5.0 percent State Groups 2 and 5.0 percent 3

Residual Fund

The amount of national underwriting gain retained by the Company will be calculated as the sum of the following:

For that portion of the underwriting gain amount for which the national loss ratio for the Company is less than or equal to 100 percent and greater than or equal to 65 percent, the Company shall retain an amount of the underwriting gain equal to the product of the following:

its retained net book premium;

100 percent minus [the greater of the Company’s national loss ratio or 65 percent]; and

15.0 percent.

For that portion of the underwriting gain amount for which the national loss ratio for the Company is less than 65 percent and greater than or equal to 50 percent, the Company shall retain an amount of the underwriting gain equal to the product of the following:

its retained net book premium;

65 percent minus [the greater of the Company’s national loss ratio or 50 percent]; and

9.0 percent.

For that portion of the underwriting gain amount for which the national loss ratio for the Company is less than 50, the Company shall retain an amount of the underwriting gain equal to the product of the following:

the Company’s retained net book premium;

50 percent minus the Company’s national loss ratio; and

2.0 percent. The Company’s cumulative underwriting gain or loss shall be determined by totaling the net Commercial Fund underwriting gains or losses for all States and the Company’s underwriting gain or loss for its Residual Fund.

Net Book Quota Share

The Company shall cede to FCIC 7.5 percent of its cumulative underwriting gain or loss calculated in paragraph (7) and the associated premium and losses with such amount.

After the cession in subparagraph (A):

Any underwriting gain due the Company will be paid by FCIC to the Company at annual settlement.

Any underwriting loss of the Company will be paid to FCIC on each monthly settlement report for which there is an underwriting loss.

Disbursement of Gains from the Net Book Quota Share

A portion of any underwriting gain from the Net Book Quota Share paid to FCIC in accordance with paragraph (8) shall be disbursed to the Company according to paragraph (A).

The portion of the Net Book Quota Share paid to the Company shall equal the lesser of the total A&O subsidy earned by the Company for the net book premium in State Group 3 or the product of the following:

the ratio of the Company’s total net book premium for additional coverage eligible crop insurance contracts for all funds in State Group 3 relative to the total net book

premium for additional coverage eligible crop insurance contracts of all AIPs for all Funds in State Group 3; and

33.3 percent of the underwriting gain from the Net Book Quota Share paid by the Company to FCIC.

Disbursement under this paragraph will be made in October after the initial annual settlement date for the reinsurance year. (A)

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Page 18: [8] Deleted NCIS 3/18/2010 12:15:00 PM Adjusted net book premium amounts shall be used to determine the amount of A&O subsidy and CAT LAE paid to the Company. The adjusted net book premium shall be calculated by multiplying the net book premium by:

The ratio calculated by dividing the reference price for the insurable commodity for the reinsurance year as specified in the chart below by the price for the insurable commodity used to establish the net book premium for each eligible crop insurance contract for the referenced commodities, subject to subclause (III):

2011 Reinsurance Year Reference Crops and Prices Commodity Reference Price Commodity Reference Price Group 1 States Wheat $4.31per bushel Upland Cotton $0.57 per pound Corn $2.83 per bushel Rice $0.096 per pound Grain Sorghum $2.67 per bushel Soybeans $7.07 per bushel Barley $3.22 per bushel Group 2 and Group 3 States Wheat $4.53 per bushel Upland Cotton $0.60 per pound Corn $2.97 per bushel Rice $0.096 per pound Grain Sorghum $2.81 per bushel Soybeans $7.43 per bushel Barley $3.38 per bushel

2012 Reinsurance Year Reference Crops and Prices Commodity Reference Price Commodity Reference Price Group 1 States Wheat $4.12 per bushel Upland Cotton $0.55 per pound Corn $2.70 per bushel Rice $0.087 per pound Grain Sorghum $2.55 per bushel Soybeans $6.75 per bushel Barley $3.08 per bushel Group 2 and Group 3 States Wheat $4.32 per bushel Upland Cotton $0.57 per pound Corn $2.83 per bushel Rice $0.091 per pound Grain Sorghum $2.68 per bushel Soybeans $7.09per bushel

2013 and Subsequent Reinsurance Years Reference Crops and Prices Commodity Reference Price Commodity Reference Price Group 1 States Wheat $3.92 per bushel Upland Cotton $0.52 per pound Corn $2.57 per bushel Rice $0.083 per pound Grain Sorghum $2.43 per bushel Soybeans $6.43 per bushel Barley $2.93 per bushel Group 2 and Group 3 States Wheat $4.12 per bushel Upland Cotton $0.55 per pound Corn $2.70 per bushel Rice $0.087 per pound Grain Sorghum $2.55 per bushel Soybeans $6.75 per bushel Barley $3.08 per bushel

For all other eligible crop insurance contracts, the ratio shall be equal to 1.0.

Unless otherwise authorized by law, the ratio calculated in subclause (I) shall not be greater than 1.0 for all eligible crop insurance contracts. (I)

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Page 26: [18] Deleted NCIS 4/1/2010 4:48:00 PM All data on which liabilities and premiums are based must be reported by the Company and accepted by FCIC not later than the transaction cut-off date for the 6th week after the week that includes the latest acreage reporting date specified in the actuarial data master file for any eligible crop insurance contract insured by the policyholder. The A&O subsidy for eligible crop insurance contracts under this Agreement will be reduced if the data is not reported and accepted by FCIC, unless the failure to report or accept is caused in whole or in part by FCIC, as follows:

Data Received During Weeks Reduction 7th through 9th 1.0 percentage point 10th through 11th 2.0 percentage point 12th or more 3.0 percentage point

CLEAN VERSION OF 2011 SRA—Appendix I (SECOND DRAFT): 02-23-10

APPENDIX I

REGULATORY DUTIES AND RESPONSIBILITIES

The parties shall comply with the following regulatory duties and responsibilities. In doing so, the Company shall not be deemed a government contractor or otherwise generally subject to other provisions of the Federal Acquisition Regulations System, as it instead is a party to a cooperative financial assistance agreement.

I. PROCUREMENT INTEGRITY

[Note: Subsections (a) and (b) have been revised to conform to the text of section 6 of the Office of Federal Procurement Policy Act Amendments of 1988 (Pub. L. 100-679).]

(a) During the term of this Agreement, the Company shall not knowingly:

(1) Make, directly or indirectly, any offer or promise of future employment or business opportunity to, or engage, directly or indirectly, in any discussion of future employment or business opportunity with, any FCIC official;

(2) Offer, give, or promise to offer or give, directly or indirectly, any money, gratuity, or other thing of value to any FCIC official; or

(3) Solicit or obtain, directly or indirectly, from any FCIC official, prior to FCIC's acceptance of this Agreement any proprietary or source selection information regarding the Agreement.

(b) During the term of this Agreement, no FCIC official shall knowingly:

(1) Solicit or accept, directly or indirectly, any promise of future employment or business opportunity from, or engage, directly or indirectly, in any discussion of future employment or business opportunity with, any officer, employee, representative, agent, consultant, or affiliate of the Company;

(2) Ask for, demand, exact, solicit, seek, accept, receive, or agree to receive, directly or indirectly, any money, or other thing of monetary value from any officer, employee, representative, agent, consultant, or affiliate of the Company; or

(3) Disclose any proprietary or source selection information regarding the Agreement, directly or indirectly, to any person other than a person authorized by FCIC to receive such information.

(c) During the term of this Agreement, no person who is given authorized or unauthorized access to proprietary information regarding the Agreement shall knowingly disclose such information, directly or indirectly, to any person other than a person authorized by FCIC to receive such information.

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(d) No USDA official or employee, including any FCIC official, who has participated personally and substantially in the deliberation of the Agreement with the Company shall:

(1) Participate in any manner, as an officer, employee, agent, representative, or affiliate of another party to this Agreement, in any negotiations regarding such an Agreement; or

(2) Participate personally and substantially on behalf of another party to this Agreement in the performance of such Agreement, during the period ending 2 years after the last date such individual participated personally and substantially in the conduct of activities associated with this Agreement.

[Note: USDA has been added to defined terms in SRA § I.]

(e) The definitions at 48 C.F.R. § 3.104-1 are incorporated in this Agreement for the purposes of this subsection, unless the term is otherwise defined herein.

(f) If the Company fails to comply with this subsection, FCIC may terminate this Agreement for cause.

(g) For the purpose of this section, the term "FCIC Official" has the same meaning as the term "Procurement Official" in section 6 of the Office of Federal Procurement Policy Act Amendments of 1988 (Pub. L. 100-679). [Note: Corrected P.L. reference.]

II. DRUG FREE WORKPLACE

[Note: Unlike the balance of Appendix I, this section sometimes uses “you” in place of “the Company” The NCIS suggested edits have revised such portions of this section to eliminate the use of the personal pronoun.]

(a) The Company agrees that it will make a good faith effort, on a continuing basis, to maintain a drug-free workplace and identify all known workplaces subject to its control.

(b) [Note: Pursuant to 48 C.F.R. § 2.101, a “workplace” is a site “for the performance of work done by the contractor,” that is, the Company. The regulation thus implies a physical location subject to the control of the Company.]The Company agrees it will, no later than thirty (30) days after the date the Agreement goes into effect; complete the following:

(1) Publish a statement that:

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(A) Tells the Company’s employees that the unlawful manufacture, distribution, dispensing, possession, or use of a controlled substance is prohibited in the Company’s workplace;

(B) Specifies the actions that the Company will take against employees for violating that prohibition; and

(C) Lets each employee know that, as a condition of employment under any award, he or she:

(i) Will abide by the terms of the statement; and

(ii) Must notify the Company, in writing, if he or she is convicted for a violation of a criminal drug statute occurring in the workplace and must do so no more than five calendar days after the conviction.

(2) Provide all employees with a copy of the statement required by subsection (b)(1);

(3) Establish an ongoing drug-free awareness program to inform employees about:

(A) The dangers of drug abuse in the workplace;

(B) The Company’s policy of maintaining a drug-free workplace;

(C) Any available drug counseling, rehabilitation, and employee assistance programs; and

(D) The penalties that the Company may impose upon them for drug abuse violations occurring in the workplace.

(c) With respect to all known workplaces:

(1) The Company may provide a list of workplaces at the time of execution of the Agreement or maintain a list in the Company offices and make such information available for examination upon the request by any USDA official or designated representatives.

(2) The list of workplaces must include the actual address of buildings (or parts of buildings) or other sites where work under the Agreement takes place, and which are subject to the control of the Company. Categorical descriptions may be used (e.g., business offices of agents and loss adjusters).

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(3) If a site identified at the time of execution of the Agreement changes during the reinsurance year, the Company must inform FCIC.

(d) The Company agrees that if an employee is convicted of a drug violation in the workplace it will:

(1) Notify FCIC in writing within ten (10) days after receiving notice from any employee or otherwise receiving actual notice of such conviction. The notice shall include the position/title of the employee; and

(2) Within 30 days after receiving notice from any employee or otherwise receiving actual notice of a conviction, take one of the following actions with respect to any employee who is convicted of a drug abuse violation occurring in the workplace:

(A) Take appropriate personnel action against such employee, up to and including termination; or

(B) Require that such employee satisfactorily participate in a drug abuse assistance or rehabilitation program approved for such purposes by a federal, state, or local health, law enforcement, or other appropriate agency.

(3) The Company certifies and agrees that it will not engage in the unlawful manufacture, distribution, dispensing, possession, or use of a controlled substance in the performance of this Agreement.

III. ANTI-LOBBYING

The Company shall comply with all provisions and requirements of 7 C.F.R. § 3018 and disclose any lobbying activities on OMB Standard form LLL (or any successor form). This disclosure is a material representation of fact upon which FCIC relied when the Agreement was entered into. Submission of this certification and disclosure is a prerequisite for making or entering into this Agreement as imposed by section 1352, title 31, United States Code. Any person who fails to file or amend the disclosure form to be filed or amended by this provision, shall be subject to a civil penalty of not less than $10,000, and not more than $100,000, for each such failure.

IV. LARGE CLAIMS

As a condition of reinsurance and prior to commencing any loss adjustment activity, the Company agrees to comply with all provisions of FCIC’s Large Claims Procedures, as applicable.

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V. COMPLIANCE WITH STATE INSURANCE LAWS

(a) Unless preempted in accordance with the Act or section IV.(o) of the Agreement, the Company and its affiliates shall comply with applicable State law.

(b) If a State Insurance Department determines that the Company or any of its affiliates are in non-compliance with an applicable State law and FCIC determines that the non-compliance materially affects the Company’s ability to meet its obligations under this Agreement, such non-compliance shall be considered a breach of this Agreement unless remedial action by the Company or affiliate to correct the non-compliance is approved by FCIC.

(c) Upon the request of FCIC, the Company shall submit to FCIC information or documentation the Company is required to submit to the State Insurance Department under an applicable State law related to the business conducted under this Agreement.

(d) If a State Insurance Department notifies the Company or its affiliates that it is taking, or proposes to take, an action against the Company or its affiliates or directs the Company to take an action, the Company must immediately notify FCIC of such action and any remedial action proposed to be taken by the Company or directed by the State Insurance Department that directly or indirectly affects the Company’s ability to perform its obligations under this Agreement.

VI. CONFLICT OF INTEREST

In this section, any reference to an agent or agents also includes a subagent or subagents.

(a) Loss Adjustment

(1) In accordance with Appendix IV, the Company and its affiliates shall not permit:

(A) Its sales agents, agency employees, sales supervisors, to be involved in loss adjustment activities in a county or adjoining county where the sales agent, agency employee or sales supervisor performs sales functions (except receipt and transfer to the Company of a notice of loss) on behalf of any AIP.

(B) A relative of a sales agent, agency employee, or sales supervisor to be involved in loss adjustment activities in a county or adjoining county where the sales agent, agency employee or sales supervisor performs sales functions (except receipt and transfer to the Company of a notice of loss) on behalf of the Company.

(2) Prohibited loss adjustment activities for all individuals referenced in paragraphs (1)(A) and (B) include the following:

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(A) The supervision, control, or adjustment of a claim. The Company is solely responsible for the supervision and control of the loss adjustment process for a loss determination and all loss adjustment oversight. The agent’s prohibition in loss adjustment activities is not intended to preempt any duty or obligation of the agent under state laws to provide guidance and advice to the policyholder on his or her policy options, duties, rights, and responsibilities.

(B) Obtaining sales or production records for the purposes of loss adjustment on behalf of the policyholder (other than simply collecting information directly from the policyholder and providing it to the Company).

(i) The agent may receive a notice of loss from the policyholder and transfer it to the Company; provide a copy of the Company’s official file folder, as applicable, to the loss adjuster or reviewer; provide the loss adjuster or reviewer with any information provided by the policyholder related to the loss; facilitate the loss adjuster’s gathering of information directly from other parties; and assist the loss adjuster in locating the policyholder or vice versa.

(ii) Loss adjusters and reviewers are directly responsible for the verification and validation of the information from the third party source of such information and nothing in the facilitation of such interactions or information gathering permits activities that may allow the agent to influence the loss adjustment process or the loss adjuster’s or reviewer’s independent determination of loss.

(C) A loss adjustment determination or verification required to complete a claim or the determination or verification of a cause of loss.

(i) An agent shall not influence the policyholder or loss adjuster in the preparation or presentation of information associated with a claim; the determination or verification of facts or information associated with a claim, or the determination of the cause of loss or the amount of a claim, other than to facilitate the loss adjuster or reviewer’s gathering of information from the policyholder.

(ii) Prohibited agent activities include, but are not limited to, riding with the loss adjuster to the field or being present with the loss adjuster during the loss inspection and related processes; accompanying the loss adjuster or reviewer in 6 DB04/763432.0030/2554125.2 WP08 CLEAN VERSION OF 2011 SRA—Appendix I (SECOND DRAFT): 02-23-10

their independent verification and validation of claim information from third parties; offering the use of or allowing a loss adjuster to use the agent’s or agency’s office, computer, or other similar resources to prepare the claim and related documentation.

(iii) Prohibited agent and loss adjuster contact does not include social interactions; checking on the status of a claim or claim payment; facilitating follow up contact between the policyholder and loss adjuster; the normal course of business contact on other crop insurance matters not related to a specific open claim; and interaction on a claim after the loss adjuster has filed the appropriate claim documentation with the Company (the agent shall not engage the loss adjuster directly on a claim dispute);

(D) Verification of yields for the purpose of validating insurance coverage or the guarantee. The agent must not be present during any inspections performed by the Company for the purposes of determining insurability of the crop or the amount of the crop to be insured.

(E) After a notice of loss is filed by the policyholder, advising or assisting the policyholder in any manner regarding the preparation of the claim and the determination of the indemnity, including, but not limited to, whether the loss adjuster correctly applied loss adjustment procedures.

(i) The agent is permitted to consult with the policyholder to explain crop insurance terms and conditions, insurance processes, and the implications of decisions or actions that may be taken by the policyholder under the policy. However, such consultation must not include opinions, influence, or coercion as to the facts of a claim on policies written by the agent or the determinations of the loss adjuster on a claim.

(ii) If the agent suspects that a claim has been adjusted improperly or contains factual errors, the agent may contact the Company’s field supervisor or claims manager for review and assistance, but must not discuss the matter directly with the loss adjuster.

(F) Any other function reserved for loss adjusters in the procedures.

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complete a claim, or the determination or verification of a cause of loss, to adjust a loss for:

(A) A policyholder with whom they have a business, financial or legal relationship (Business, financial and legal interests include but are not limited to lending money, custom farming, leasing land or other property, selling other goods or services besides insurance, or activities of a similar nature. The sale and purchase of crop insurance does not constitute a business, financial or legal relationship with the policyholder that must be reported);

(B) A policyholder, or a person with a substantial beneficial interest in the policyholder, whose eligible crop insurance contract was sold by a relative of the person; or

(C) A relative of the person.

(b) Sales, Solicitation and Brokering

(1) The Company and its affiliates shall not permit any person involved in the loss adjustment determination or verification required to complete a claim or the determination or verification of a cause of loss, to be involved with the sales, solicitation or brokering of an eligible crop insurance contract or with any other function reserved for the agent in the procedures approved by FCIC in a county or adjoining county where the claims supervisor, employee or contractor performs claims functions on behalf of any AIP.

(2) The Company and its affiliates shall not permit a relative of any person involved in the loss adjustment determination or verification required to complete a claim or the determination or verification of a cause of loss, to be involved with the sales, solicitation or brokering of an eligible crop insurance contract or with any other function reserved for the agent in the procedures approved by FCIC in a county or adjoining county where the claims supervisor, employee or contractor performs claims functions on behalf of the Company.

(c) Underwriting

The Company and its service providers shall not permit their sales agents, the owners or employees of their sales agencies, their sales supervisors, or any relative to be involved in the acceptance and verification of underwriting data relating to eligibility and coverage for an eligible crop insurance contract written by such person. This prohibition shall not apply to the routine transmission of information provided by applicants or policyholders that is necessary to issue eligible crop insurance contracts or coverage.

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(e) A person employed by the Company or its service provider for the general supervision of the sales and service of eligible crop insurance contracts, as identified by the Company in section IV. of Appendix II, may supervise those activities associated with the general administration of such contracts, which may include the management of sales and loss adjustment. Disclosure

(1) The Company must notify all of its employees and affiliates, including agents, agencies, and loss adjusters, in writing of the rules regarding conflict of interest and the requirement to disclose to the Company and in turn FCIC any business, financial, or legal relationship with a policyholder, is a relative of the policyholder, or a person with a substantial beneficial interest in the policyholder, in accordance with Appendix IV and FCIC procedures.

(2) In addition to any other sanctions in this Agreement, if the Company fails to follow the provisions of this section, Appendix IV, and FCIC procedures, eligible crop insurance contracts sold or serviced by the person who failed to disclose a business, financial, or legal relationship with a policyholder or is a relative of the policyholder may not, at FCIC’s discretion, be reinsured or receive A&O subsidy, CAT LAE, or risk subsidies for the reinsurance year for which such disclosure was not provided.

(A) Disclosure and Notification Requirements

(i) Applicable employees and affiliates will be required each year to submit a signed statement that verifies awareness of the conflict of interest rules and an agreement to abide by them.

(ii) Applicable employees and affiliates must annually disclose the required information by the applicable acreage reporting date. Such disclosure must include the name of the policyholder or person with a substantial beneficial interest in the policyholder, and the type of relationship.

(iii) If the applicable employee or affiliate enters into a business, financial, or legal -relationship or becomes a relative with the policyholder after the annual disclosure, the applicable employee or affiliate must disclose the information required in subparagraph (D) within 15 days of entering the relationship.

(iv) The Company must evaluate the business, financial or legal relationship or the relationship with the relative to determine whether the applicable employee or affiliate is in violation of subsection (a), (b), or (c) or whether a 9 DB04/763432.0030/2554125.2 WP08 CLEAN VERSION OF 2011 SRA—Appendix I (SECOND DRAFT): 02-23-10

conflict of interest review is necessary to determine if such violation has occurred. At a minimum, such reviews will be necessary when:

(I) The applicable employee or affiliate is in the immediate family of the policyholder or is a person with a substantial beneficial interest in the policyholder; or

(II) The business, financial or legal relationship with the policyholder has the potential to produce an incentive to create or inflate a loss because the applicable employee or affiliate, or a relative of the employee or affiliate, is entitled to a portion of the proceeds of the crop or the crop insurance payment or would otherwise receive a benefit from the policyholder based on the existence of crop insurance and their relationship.

(f) Notification

The Company shall notify FCIC within 3 business days in writing when it discovers that a Company employee or affiliate of the Company has violated the requirements of this section.

VII. CONTROLLED BUSINESS

(a) No individual (including a subagent) may receive directly, or indirectly through a Company or its affiliates, any compensation (including any commission, profit sharing, bonus, or any other direct or indirect benefit) for the sale and service of an eligible crop insurance contract if:

(1) The individual has a substantial beneficial interest, or a member of the individual’s immediate family has a substantial beneficial interest, in the eligible crop insurance contract; and

(2) The total compensation to be paid to the individual with respect to the sale or service of the eligible crop insurance contract that meets the condition described in paragraph 1 exceeds 30 percent, or the percentage specified in State law, whichever is less, of the total of all compensation received directly or indirectly by the individual for the reinsurance year.

(b) Not later than 90 days after the annual settlement date following the end of the reinsurance year, any individual that received directly or indirectly any compensation through a Company or its affiliates for the service or sale of any eligible crop insurance contract in the prior reinsurance year shall certify to the

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applicable Company, in format approved by FCIC, that the compensation that the individual received was in compliance with this paragraph.

(c) Non-compliance

(1) The following individuals are subject to disqualification and civil fines under the procedures implementing section 515(h) of the Act (7 U.S.C. § 1515(h)) and any other procedures approved by FCIC implementing section 515(h): [Note: corrected statutory reference]

(A) Individuals who failed to timely provide the required certification;

(B) Individuals who certified non-compliance with the requirements of this paragraph, except where non-compliance results from circumstances beyond the control of the individual; or

(C) Individuals who certified compliance but who have been determined to not be in compliance.

(2) Reinsurance will not be denied for the eligible crop insurance contracts associated with any violation with respect to paragraph (1).

VIII. TRAINING REQUIREMENTS

The Company shall ensure that all of its employees, agents, agency employees, loss adjusters, and contractors that act on behalf of the Company with respect to the selling, servicing, and adjusting of eligible crop insurance contracts meet all the requirements contained in the Appendices and procedures issued by FCIC.

(a) All applicable employees, agents, agency employees, loss adjusters, and contractors must be trained in accordance with Appendix IV.

(b) All employees, agents, and agency employees, who are involved in the selling and servicing (except loss adjustment) of eligible crop insurance contracts, must be licensed in the State in which they are doing business if required by the State; and

(c) All loss adjusters adjusting eligible crop insurance contracts must be certified by FCIC before they can conduct any loss adjustment. Certification of loss adjusters may be obtained by completing the training requirements in subsection (a) and:

(1) If any State in which the loss adjuster performs loss adjustment activities requires the loss adjuster to take a test which is directly related to crop insurance to obtain a license to adjust an eligible crop insurance contract, taking and passing the State test and obtaining the license required by the State;

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(2) If any State in which the loss adjuster performs loss adjustment activities does not require the loss adjuster to obtain a license to adjust an eligible crop insurance contract (including those cases where the loss adjuster is a company employee and the State excludes company employees from licensing requirements), taking and completing with a passing grade a proficiency testing program developed, approved, and implemented under procedures issued by FCIC or, if such FCIC-approved proficiency testing program is not available in the State, completing the training required by the Company under Appendix IV; or

(3) If any State in which the loss adjuster performs loss adjustment activities requires a test which is not crop insurance-specific (as determined by FCIC) to obtain a license to adjust an eligible crop insurance contract, taking and passing the State test and obtaining the license required by the State. [Beginning with the 2012 reinsurance year the provision will read: “…taking and completing with a passing grade a proficiency testing program developed, approved, and implemented under procedures issued by FCIC in lieu of obtaining a license in such State, or, if such FCIC- approved proficiency testing program is not available in the State, taking and passing the State test and obtaining the license required by the State.”]

(d) The Company shall not permit a loss adjuster to conduct any loss adjustment activity for the reinsurance year until he or she has been certified. FCIC will consider the loss adjuster to be certified after:

(1) The loss adjuster provides to the Company verifiable documentation showing that he or she has completed the required training, obtained the proper license or has taken and completed with a passing grade the applicable test or testing program specified in subsection (c); and

(2) The Company submits proper written or electronic verification to FCIC, as directed by FCIC.

(e) Any person who has been found in material noncompliance with any loss adjustment policy, procedure, or training requirement approved by FCIC shall be de-certified by FCIC. In such case, FCIC will provide written notification to the Company, and the Company shall not permit that person to perform loss adjustment activities until he or she has received the training specified by FCIC, has retaken and completed with a passing grade the required proficiency testing program, and has been certified by FCIC. A listing of persons decertified will be available to the Company.

(f) Allowing a loss adjuster to conduct any loss adjustment activity on a policy before he or she is properly certified or after he or she has been de-certified shall result in the denial of reinsurance, A&O subsidy, CAT LAE, or risk subsidy for all policies upon which such activity occurred.

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IX. OVERSIGHT AND CUT-THROUGH

(a) Whenever FCIC determines that the Company is unable to substantially fulfill an obligation that materially affects its performance under this Agreement with respect to some or all of the eligible crop insurance contracts it has in its book of business, FCIC may impose one or more of the following on the Company:

(1) Require additional reporting to FCIC of financial or operational information related to business conducted under the Agreement.

(2) Allow the placement of representatives of FCIC at any location of the Company and its service providers to monitor activities that directly or indirectly affect the performance of the Company’s obligations under this Agreement.

(3) Require the Company to obtain approval from FCIC of some or all decisions or actions (including but not limited to any transaction, payment, agreement, and servicing of eligible crop insurance contracts) taken or contemplated by the Company or its service providers that could directly or indirectly affect the performance of the Company’s obligations under this Agreement.

(4) Take all reasonable steps to preserve the assets and financial and operating capabilities of the Company to perform its obligations under this Agreement.

(5) Transfer to FCIC, or its designee, without further action of the Company, any or all eligible crop insurance contracts. With respect to any eligible crop insurance contract transferred to FCIC:

(A) FCIC will assume all obligations for unpaid losses whether occurring before or after the date of transfer regarding such eligible crop insurance contracts, and the Company must pay FCIC all funds in possession of the Company and its affiliates with respect to all such eligible crop insurance contracts transferred including, but not limited to, premiums collected or any payments from commercial reinsurers related to the book of business.

(B) FCIC, or its designee, will have the right to conduct all activities related to the sale and service of eligible crop insurance contracts.

(C) FCIC has the right to all uncollected premiums on all eligible crop insurance contracts.

(D) Any uncollected debts owed to the Company under an eligible crop insurance contract will become a debt owed to FCIC.

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(E) To the extent that FCIC contracts for an AIP or other entity to service the transferred eligible crop insurance contracts, the AIP or other entity will receive A&O subsidy for service the AIP or other entity must perform for such eligible crop insurance contracts in proportion to the amount of service required for the remainder of the crop year.

(6) With respect to eligible crop insurance contracts that are transferred to FCIC and when another AIP agrees to assume the eligible crop insurance contracts:

(A) The AIP will assume the obligations for unpaid losses whether occurring before or after the date of transfer regarding such eligible crop insurance contracts, unless otherwise determined by FCIC;

(B) FCIC will remit to the AIP any premium or any applicable payments from commercial reinsurers collected from the Company; and

(C) The AIP will receive A&O subsidy for services the AIP must perform for such eligible crop insurance contracts in proportion to the amount of service required for the remainder of the crop year.

(b) A Company in supervision, rehabilitation, liquidation, or any equivalent action by a State is presumed to be unable to substantially fulfill obligations that materially affect its performance under this Agreement with respect to some or all of the eligible crop insurance contracts it has in its book of business for the purposes of subsection (a).

(c) If either subsection (a)(4) or (5) is implemented with respect to another AIP, the Company, within the limits of its financial and operational resources, agrees to cooperate with FCIC in the transferring and servicing of such eligible crop insurance contracts.

X. SUPERVISION, REHABILITATION, AND LIQUIDATION

If the Company is placed in supervision, rehabilitation, liquidation, or any equivalent action by a State Insurance Department:

(a) The Company shall take all reasonable steps to facilitate a working relationship between FCIC and the State Insurance Department during the period the Company is in supervision, rehabilitation, liquidation, or any equivalent action.

(b) The Company shall take all reasonable steps to ensure that FCIC has access to information and use of the operating systems, records, equipment, or other

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property used in the administration of the Company’s book of business for as long as necessary to service the book of business.

(c) In liquidation (or equivalent situation):

(1) If FCIC has expended funds to keep the Company operational, including the payment of expenses already included in the A&O subsidy, or to pay other expenses not included in the A&O subsidy, when the Company was in supervision, rehabilitation liquidation, or any equivalent situation, with respect to the repayment of such funds, FCIC shall have priority over all other creditors except for expenses of the state supervisor, rehabilitator, liquidator, or equivalent person; and

(2) If the Company owes any other funds to FCIC not included in paragraph (1) with respect to the repayment of such funds, FCIC shall have priority over all other non-federal creditors.

(d) FCIC will have the right to conduct all activities related to the sale and service of eligible crop insurance contracts.

(e) The Company and its affiliates must pay to FCIC all funds in their possession with respect to all eligible crop insurance contracts including, but not limited to, premiums collected or any applicable payments from commercial reinsurers.

(f) Any uncollected debts or premiums owed to the Company under an eligible crop insurance contract will become a debt owed to FCIC.

(g) The Company and its affiliates shall:

(1) Properly and fully service all eligible crop insurance contracts until transferred or the applicable cancellation date, whichever is the later;

(2) Take all reasonable efforts to ensure that the Company’s commercial reinsurance applicable to its book of business remains in effect; and

(3) Not delay any payment to FCIC or the policyholder related to an eligible crop insurance contract.

(4) Those persons found not in compliance with subsection (g)(3) shall be subject to debarment from participating in the programs of FCIC and USDA.

XI. MEDIATION, ARBITRATION, LITIGATION AND ASSISTANCE

(a) The Company’s expenses incurred as a result of litigation are covered by the A&O subsidy. FCIC has no obligation to provide other funds to reimburse the Company for litigation costs.

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(b) In accordance with procedures established by FCIC, the Company may request FCIC to provide non-monetary assistance, including witnesses, documents, and direction or such other assistance for mediation, arbitration or litigation. FCIC will only consider the Company's request for assistance if the Company:

(1) Reports the matter in accordance with subsection (c);

(2) Immediately notifies FCIC in writing of the requested action setting forth the reasons such action would be in the best interests of FCIC;

(3) Presents all legal arguments favorable to its defense which it has a good faith basis to assert, including those suggested by FCIC; and

(4) Does not join FCIC as a party to the action unless FCIC agrees in writing to be joined as a party, or unless otherwise required by law.

Notwithstanding the foregoing, the availability of witnesses and documents shall be determined in accordance with applicable court rules when both the Company and FCIC have been named as co- defendants in litigation brought by policyholders or similarly situated litigants.

(c) The Company shall report to FCIC, in accordance with established procedures, disputes with policyholders in mediation, arbitration, litigation or legal action, within 30 days after the Company has been notified of such dispute.

(d) FCIC will, at its sole discretion, determine if the requested action under this section will be granted. The criteria to determine such action will be whether such action is in the best interest of FCIC and the Federal crop insurance program.

(e) Unless otherwise provided in this Agreement, FCIC will pay ultimate net losses for eligible crop insurance contracts of the Company in accordance with the provisions of section II.(b) of the Agreement:

(1) In addition to the amount of the claim, ultimate net loss may include interest owed to policyholders related to the eligible crop insurance contract that is included:

(A) In a final judgment against the Company by an arbitrator or a court of competent jurisdiction if FCIC determines that:

(i) Such interest resulted from the Company's substantial compliance with all applicable procedures in the selling and servicing of the eligible crop insurance contract; and

(ii) The award of such interest did not involve negligence or culpability on the part of the Company or its affiliates; and

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(B) In the settlement of any claim if FCIC, in addition to the determinations included above, determines that the settlement should be approved.

(2) In all arbitration and mediation cases or any other case that has been settled by the Company and policyholder:

(A) The Company must provide to FCIC all written statements from the arbitrator describing the issues in dispute, the factual findings, the determinations, and the amount and basis for any award;

(B) The Company must provide to FCIC all settlement agreements that contain, at a minimum, a statement of the issues in dispute and the amount of the settlement;

(C) The Company must provide to FCIC all written opinions of the court, all pleadings filed in the case, and other documentation requested by FCIC; and

(D) Failure of the Company to provide the required information in this subparagraph for an eligible crop insurance contract will result in denial of reinsurance for such contract.

(f) Under no circumstance are any punitive or consequential damages, attorney fees or any other costs, including court costs, included in the calculation of ultimate net loss.

(g) For the purposes of this subsection only, the term “settlement” means the compromise or resolution of a dispute under an eligible crop insurance contract between the Company and a policyholder.

XII. SANCTIONED PERSONS

The Company and its affiliates shall not use any person who has been debarred or suspended, or voluntarily excluded under 7 C.F.R. Part 3017, 7 C.F.R. § 400.456 or any successor regulation by FCIC or any other U.S. Government Agency or disqualified by FCIC under section 515(h) (7 U.S.C. § 1515(h)), as applicable, in any manner which involves performance under this Agreement. Use of a disqualified, debarred, suspended or voluntarily excluded person or entity may subject the Company and affiliate to suspension and debarment in accordance with 7 C.F.R. 3017, 7 C.F.R. § 400.456 part 417 or any successor regulation.

XIII. MEMBER - DELEGATE

No member of or delegate to Congress nor any resident commissioner will be permitted to have any share or part of this Agreement or receive any benefit that may arise therefrom, except that this provision will not be construed to apply to a benefit from this Agreement

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that accrues to a member of or delegate to Congress or any resident commissioner as a result of an interest in a corporation and the benefit is for the corporation’s general benefit. Members of or delegates to Congress or any resident commissioner are eligible to purchase a crop insurance contract for any crop in which they have an insurable interest.

XIV. DATA COLLECTION

The Company shall fully cooperate with FCIC in the collection of information required under section 2501A of the Food, Agriculture, Conservation and Trade Act of 1990, as amended by section 10708 of the Farm Security and Rural Investment Act of 2002.

XV. NON-DISCLOSURE

(a) The Company shall:

(1) Ensure that all persons having access to Protected Information, who are either employed by or have contracted with the Company, sign an Individual Non-disclosure Statement. If a person employed by or having a contract with the Company has previously executed a Non-disclosure Statement with another AIP, that person must either submit a copy of the original Non-disclosure Statement to the Company or sign and submit a new Non-disclosure Statement.

(2) Maintain copies of all Non-disclosure Statements (NDS) and have them available for examination.

(3) Ensure that its affiliates and contractors are fully aware of the need to protect information and the requirement to collect Non-disclosure Statements from all persons having access to Protected Information. Affiliates and contractors, in turn, must ensure that all persons having access to Protected Information who are either employed by or have contracted with them, must sign a Non-disclosure Statement.

(4) Ensure that all contractors or affiliate of the Company maintain copies of all such NDSs and have them available for examination.

(5) By April 1st of each year, obtain an annual certification from each of its contractors and affiliates that the respective contractor or affiliate has obtained an NDS from each person who has access to any Protected Information and who is employed by or has a contract with the contractor or the affiliate. The purpose of the annual certification by the contractor or affiliate to the Company is to ensure that the contractor or affiliate annually reviews its files to determine that any new employees or other persons having access to Protected Information have signed an NDS. The written and signed certification must be from an officer of the affiliate or contractor to the Company and can state: “I hereby certify that [insert the name of the affiliate or contractor] has reviewed its files and, as of [insert 18 DB04/763432.0030/2554125.2 WP08 CLEAN VERSION OF 2011 SRA—Appendix I (SECOND DRAFT): 02-23-10

date review was completed], all employees or other persons having access to Protected Information have signed a Non-disclosure Statement.”

(6) Maintain copies of all certifications from contractors or affiliates and have them available for examination.

(7) Ensure that all persons who are employed by or have a contract with the Company have executed an NDS prior to obtaining access to Protected Information.

(8) Notify contractors and affiliates regarding the requirement that all persons employed by or having a contract with the contractor or affiliate must sign an NDS prior to obtaining access to Protected Information.

(9) Provide an annual certification to FCIC in the Plan of Operations according to Appendix II that it has obtained an NDS from all persons who have access to any protected information and who are employed by or have a contract with the AIP; and, in the case of persons employed by or having a contract with a contractor or affiliate, has obtained a certification from the contractor or affiliate that the contractor or affiliate has obtained an NDS from all such persons. The purpose of the annual certification by the Company to FCIC is to ensure that the Company annually reviews its files to determine that any new employees or other persons having access to Protected Information have signed an NDS and that all affiliates and contractors have provided an annual certification as to the NDSs signed by their employees. The written and signed certification must be from an officer of the Company and can state: “I hereby certify that [insert the name of the Company] has reviewed its files and as of [insert date review was completed], all employees or other persons having access to Protected Information have signed a Non-disclosure Statement and all affiliates and contractors have certified that their employees and other persons having access to Protected Information have signed Non-disclosure Statements.”

(10) Not provide Comprehensive Information Management System (CIMS) information to anyone who has not signed and submitted an individual NDS to the Company or the respective contractor or affiliate.

(b) The Company and its contractors and affiliates may use electronic versions of the NDS which incorporate either a digital signature or an authentication system to properly identify the submitter. Electronic records of signed or authenticated NDSs must be retained by the respective contractor, or affiliate and be available for examination.

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APPENDIX I

REGULATORY DUTIES AND RESPONSIBILITIES

The parties shall comply with the following regulatory duties and responsibilities. In doing so, the Company shall not be deemed a government contractor or otherwise generally subject to other provisions of the Federal Acquisition Regulations System, as it instead is a party to a cooperative financial assistance agreement. Deleted: with respect to:

I. PROCUREMENT INTEGRITY

[Note: Subsections (a) and (b) have been revised to conform to the text of section 6 of the Formatted: Font: Bold Office of Federal Procurement Policy Act Amendments of 1988 (Pub. L. 100-679).]

(a) During the term of this Agreement, the Company shall not knowingly:

(1) Make, directly or indirectly, any offer or promise of future employment or business opportunity to, or engage, directly or indirectly, in any discussion of future employment or business opportunity with, any FCIC official;

(2) Offer, give, or promise to offer or give, directly or indirectly, any money, gratuity, or other thing of value to any FCIC official; or

(3) Solicit or obtain, directly or indirectly, from any FCIC official, prior to FCIC's acceptance of this Agreement any proprietary or source selection information regarding the Agreement.

(b) During the term of this Agreement, no FCIC official shall knowingly:

(1) Solicit or accept, directly or indirectly, any promise of future employment or business opportunity from, or engage, directly or indirectly, in any discussion of future employment or business opportunity with, any officer, employee, representative, agent, consultant, or affiliate of the Company;

(2) Ask for, demand, exact, solicit, seek, accept, receive, or agree to receive, directly or indirectly, any money, or other thing of monetary value from Deleted: gratuity, gift, favor, any officer, employee, representative, agent, consultant, or affiliate of the entertainment, loan, Company; or Deleted: anything

(3) Disclose any proprietary or source selection information regarding the Agreement, directly or indirectly, to any person other than a person authorized by FCIC to receive such information.

(c) During the term of this Agreement, no person who is given authorized or unauthorized access to proprietary information regarding the Agreement shall Deleted: , knowingly disclose such information, directly or indirectly, to any person other than a person authorized by FCIC to receive such information.

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(d) No USDA official or employee, including any FCIC official, who has participated Deleted: Government personally and substantially in the deliberation of the Agreement with the Company shall:

(1) Participate in any manner, as an officer, employee, agent, representative, or affiliate of another party to this Agreement, in any negotiations regarding such an Agreement; or

(2) Participate personally and substantially on behalf of another party to this Agreement in the performance of such Agreement, during the period ending 2 years after the last date such individual participated personally and substantially in the conduct of activities associated with this Agreement. Deleted: and any future Deleted: s [Note: USDA has been added to defined terms in SRA § I.] Formatted: Font: Bold (e) The definitions at 48 C.F.R. § 3.104-1 are incorporated in this Agreement for the purposes of this subsection, unless the term is otherwise defined herein.

(f) If the Company fails to comply with this subsection, FCIC may terminate this Agreement for cause.

(g) For the purpose of this section, the term "FCIC Official" has the same meaning as the term "Procurement Official" in section 6 of the Office of Federal Procurement Policy Act Amendments of 1988 (Pub. L. 100-679). [Note: Corrected P.L. Deleted: lic reference.] Deleted: aw Deleted: 3 II. DRUG FREE WORKPLACE

[Note: Unlike the balance of Appendix I, this section sometimes uses “you” in place of “the Company” The NCIS suggested edits have revised such portions of this section to eliminate the use of the personal pronoun.]

(a) The Company agrees that it will make a good faith effort, on a continuing basis, to maintain a drug-free workplace and identify all known workplaces subject to its control.

(b) [Note: Pursuant to 48 C.F.R. § 2.101, a “workplace” is a site “for the performance of work done by the contractor,” that is, the Company. The regulation thus implies a physical location subject to the control of the Company.]The Company agrees it will, no later than thirty (30) days after the Deleted: ¶ date the Agreement goes into effect; complete the following: Deleted: certifies and

(1) Publish a statement that:

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(A) Tells the Company’s employees that the unlawful manufacture, Deleted: your distribution, dispensing, possession, or use of a controlled substance is prohibited in the Company’s workplace; Deleted: your

(B) Specifies the actions that the Company will take against employees Deleted: you for violating that prohibition; and

(C) Lets each employee know that, as a condition of employment under any award, he or she:

(i) Will abide by the terms of the statement; and

(ii) Must notify the Company, in writing, if he or she is Deleted: you convicted for a violation of a criminal drug statute occurring in the workplace and must do so no more than five calendar days after the conviction.

(2) Provide all employees with a copy of the statement required by subsection (b)(1);

(3) Establish an ongoing drug-free awareness program to inform employees about:

(A) The dangers of drug abuse in the workplace;

(B) The Company’s policy of maintaining a drug-free workplace; Deleted: Your

(C) Any available drug counseling, rehabilitation, and employee assistance programs; and

(D) The penalties that the Company may impose upon them for drug Deleted: you abuse violations occurring in the workplace.

(c) With respect to all known workplaces: Deleted: The Company certifies and agrees that it will identify (1) The Company may provide a list of workplaces at the time of execution of Deleted: and that failure to do so is a violation of the drug-free workplace the Agreement or maintain a list in the Company offices and make such requirements. information available for examination upon the request by any USDA Deleted: United States Department official or designated representatives.

(2) The list of workplaces must include the actual address of buildings (or parts of buildings) or other sites where work under the Agreement takes Deleted: award place, and which are subject to the control of the Company. Categorical descriptions may be used (e.g., business offices of agents and loss Deleted: personal vehicles, residences, adjusters). and Deleted: and residences and farming operations of policyholders).

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(3) If a site identified at the time of execution of the Agreement changes Deleted: you during the reinsurance year, the Company must inform FCIC. Deleted: , and any workplace that you identified (d) The Company agrees that if an employee is convicted of a drug violation in the Deleted: you workplace it will: Deleted: certifies and

(1) Notify FCIC in writing within ten (10) days after receiving notice from any employee or otherwise receiving actual notice of such conviction. The Deleted: learning notice shall include the position/title of the employee; and

(2) Within 30 days after receiving notice from any employee or otherwise receiving actual notice of a conviction, take one of the following actions Deleted: learning with respect to any employee who is convicted of a drug abuse violation occurring in the workplace:

(A) Take appropriate personnel action against such employee, up to and including termination; or

(B) Require that such employee satisfactorily participate in a drug abuse assistance or rehabilitation program approved for such purposes by a federal, state, or local health, law enforcement, or other appropriate agency.

(3) The Company certifies and agrees that it will not engage in the unlawful manufacture, distribution, dispensing, possession, or use of a controlled substance in the performance of this Agreement.

III. ANTI-LOBBYING

The Company shall comply with all provisions and requirements of 7 C.F.R. § 3018 and disclose any lobbying activities on OMB Standard form LLL (or any successor form). This disclosure is a material representation of fact upon which FCIC relied when the Deleted: certify its compliance with such. Agreement was entered into. Submission of this certification and disclosure is a Deleted: certification prerequisite for making or entering into this Agreement as imposed by section 1352, title Deleted: reliance was placed then 31, United States Code. Any person who fails to file or amend the disclosure form to be filed or amended by this provision, shall be subject to a civil penalty of not less than $10,000, and not more than $100,000, for each such failure.

IV. LARGE CLAIMS

As a condition of reinsurance and prior to commencing any loss adjustment activity, the Company agrees to comply with all provisions of FCIC’s Large Claims Procedures, as applicable.

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V. COMPLIANCE WITH STATE INSURANCE LAWS

(a) Unless preempted in accordance with the Act or section IV.(o) of the Agreement, the Company and its affiliates shall comply with applicable State law.

(b) If a State Insurance Department determines that the Company or any of its affiliates are in non-compliance with an applicable State law and FCIC determines that the non-compliance materially affects the Company’s ability to meet its obligations under this Agreement, such non-compliance shall be considered a breach of this Agreement unless remedial action by the Company or affiliate to correct the non-compliance is approved by FCIC.

(c) Upon the request of FCIC, the Company shall submit to FCIC information or documentation the Company is required to submit to the State Insurance Department under an applicable State law related to the business conducted under this Agreement.

(d) If a State Insurance Department notifies the Company or its affiliates that it is taking, or proposes to take, an action against the Company or its affiliates or directs the Company to take an action, the Company must immediately notify FCIC of such action and any remedial action proposed to be taken by the Company or directed by the State Insurance Department that directly or indirectly affects the Company’s ability to perform its obligations under this Agreement.

VI. CONFLICT OF INTEREST

In this section, any reference to an agent or agents also includes a subagent or subagents.

(a) Loss Adjustment

(1) In accordance with Appendix IV, the Company and its affiliates shall not permit:

(A) Its sales agents, agency employees, sales supervisors, to be involved in loss adjustment activities in a county or adjoining county where the sales agent, agency employee or sales supervisor performs sales functions (except receipt and transfer to the Company of a notice of loss) on behalf of any AIP.

(B) A relative of a sales agent, agency employee, or sales supervisor to be involved in loss adjustment activities in a county or adjoining county where the sales agent, agency employee or sales supervisor performs sales functions (except receipt and transfer to the Company of a notice of loss) on behalf of the Company.

(2) Prohibited loss adjustment activities for all individuals referenced in paragraphs (1)(A) and (B) include the following:

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(A) The supervision, control, or adjustment of a claim. The Company is solely responsible for the supervision and control of the loss adjustment process for a loss determination and all loss adjustment oversight. The agent’s prohibition in loss adjustment activities is not intended to preempt any duty or obligation of the agent under Deleted: the state laws to provide guidance and advice to the policyholder on Deleted: and responsibility his or her policy options, duties, rights, and responsibilities.

(B) Obtaining sales or production records for the purposes of loss adjustment on behalf of the policyholder (other than simply collecting information directly from the policyholder and providing it to the Company).

(i) The agent may receive a notice of loss from the policyholder and transfer it to the Company; provide a copy of the Company’s official file folder, as applicable, to the loss adjuster or reviewer; provide the loss adjuster or reviewer with any information provided by the policyholder related to the loss; facilitate the loss adjuster’s gathering of information directly from other parties; and assist the loss adjuster in locating the policyholder or vice versa.

(ii) Loss adjusters and reviewers are directly responsible for the verification and validation of the information from the third party source of such information and nothing in the facilitation of such interactions or information gathering permits activities that may allow the agent to influence the loss adjustment process or the loss adjuster’s or reviewer’s independent determination of loss.

(C) A loss adjustment determination or verification required to complete a claim or the determination or verification of a cause of loss.

(i) An agent shall not influence the policyholder or loss adjuster in the preparation or presentation of information associated with a claim; the determination or verification of facts or information associated with a claim, or the determination of the cause of loss or the amount of a claim, other than to facilitate the loss adjuster or reviewer’s gathering of information from the policyholder.

(ii) Prohibited agent activities include, but are not limited to, riding with the loss adjuster to the field or being present with the loss adjuster during the loss inspection and related processes; accompanying the loss adjuster or reviewer in 6 DB04/763432.0030/2554125.2 WP08 RED-LINED VERSION OF 2011 SRA—Appendix I (SECOND DRAFT): 02-23-10

their independent verification and validation of claim information from third parties; offering the use of or allowing a loss adjuster to use the agent’s or agency’s office, computer, or other similar resources to prepare the claim and related documentation.

(iii) Prohibited agent and loss adjuster contact does not include social interactions; checking on the status of a claim or claim payment; facilitating follow up contact between the policyholder and loss adjuster; the normal course of business contact on other crop insurance matters not related to a specific open claim; and interaction on a claim after the loss adjuster has filed the appropriate claim documentation with the Company (the agent shall not engage the loss adjuster directly on a claim dispute);

(D) Verification of yields for the purpose of validating insurance coverage or the guarantee. The agent must not be present during any inspections performed by the Company for the purposes of determining insurability of the crop or the amount of the crop to be insured.

(E) After a notice of loss is filed by the policyholder, advising or assisting the policyholder in any manner regarding the preparation of the claim and the determination of the indemnity, including, but not limited to, whether the loss adjuster correctly applied loss adjustment procedures.

(i) The agent is permitted to consult with the policyholder to explain crop insurance terms and conditions, insurance processes, and the implications of decisions or actions that may be taken by the policyholder under the policy. However, such consultation must not include opinions, influence, or coercion as to the facts of a claim on policies written by the agent or the determinations of the loss adjuster on a claim.

(ii) If the agent suspects that a claim has been adjusted improperly or contains factual errors, the agent may contact the Company’s field supervisor or claims manager for review and assistance, but must not discuss the matter directly with the loss adjuster.

(F) Any other function reserved for loss adjusters in the procedures.

(3) The Company and its service providers shall not permit any person involved in the loss adjustment determination or verification required to 7 DB04/763432.0030/2554125.2 WP08 RED-LINED VERSION OF 2011 SRA—Appendix I (SECOND DRAFT): 02-23-10

complete a claim, or the determination or verification of a cause of loss, to adjust a loss for:

(A) A policyholder with whom they have a business, financial or legal relationship (Business, financial and legal interests include but are not limited to lending money, custom farming, leasing land or other property, selling other goods or services besides insurance, or activities of a similar nature. The sale and purchase of crop insurance does not constitute a business, financial or legal relationship with the policyholder that must be reported);

(B) A policyholder, or a person with a substantial beneficial interest in the policyholder, whose eligible crop insurance contract was sold by a relative of the person; or

(C) A relative of the person.

(b) Sales, Solicitation and Brokering Deleted: <#>Claims supervisors shall not be permitted to perform any loss adjustment in any county in which they supervise loss (1) The Company and its affiliates shall not permit any person involved in the adjustment. ¶ loss adjustment determination or verification required to complete a claim or the determination or verification of a cause of loss, to be involved with the sales, solicitation or brokering of an eligible crop insurance contract or with any other function reserved for the agent in the procedures approved by FCIC in a county or adjoining county where the claims supervisor, employee or contractor performs claims functions on behalf of any AIP.

(2) The Company and its affiliates shall not permit a relative of any person involved in the loss adjustment determination or verification required to complete a claim or the determination or verification of a cause of loss, to be involved with the sales, solicitation or brokering of an eligible crop insurance contract or with any other function reserved for the agent in the procedures approved by FCIC in a county or adjoining county where the claims supervisor, employee or contractor performs claims functions on behalf of the Company.

(c) Underwriting Deleted: <#>Sales supervisors shall not be permitted to perform any sales or servicing in any county in which they supervise sales.¶ The Company and its service providers shall not permit their sales agents, the owners or employees of their sales agencies, their sales supervisors, or any relative to be involved in the acceptance and verification of underwriting data relating to eligibility and coverage for an eligible crop insurance contract written by such person. This prohibition shall not apply to the routine transmission of information provided by applicants or policyholders that is necessary to issue eligible crop insurance contracts or coverage.

(d) Supervision 8 DB04/763432.0030/2554125.2 WP08 RED-LINED VERSION OF 2011 SRA—Appendix I (SECOND DRAFT): 02-23-10

(e) A person employed by the Company or its service provider for the general supervision of the sales and service of eligible crop insurance contracts, as identified by the Company in section IV. of Appendix II, may supervise those activities associated with the general administration of such contracts, which may include the management of sales and loss adjustment. Disclosure Deleted: servicing, underwriting, Deleted: adjusting (1) The Company must notify all of its employees and affiliates, including Deleted: If two or more of these activities are agents, agencies, and loss adjusters, in writing of the rules regarding being operated from a single office, then each conflict of interest and the requirement to disclose to the Company and in activity must have a separate supervisor.¶ turn FCIC any business, financial, or legal relationship with a policyholder, is a relative of the policyholder, or a person with a substantial beneficial interest in the policyholder, in accordance with Appendix IV and FCIC procedures.

(2) In addition to any other sanctions in this Agreement, if the Company fails to follow the provisions of this section, Appendix IV, and FCIC procedures, eligible crop insurance contracts sold or serviced by the person who failed to disclose a business, financial, or legal relationship with a policyholder or is a relative of the policyholder may not, at FCIC’s discretion, be reinsured or receive A&O subsidy, CAT LAE, or risk subsidies for the reinsurance year for which such disclosure was not provided.

(A) Disclosure and Notification Requirements

(i) Applicable employees and affiliates will be required each year to submit a signed statement that verifies awareness of the conflict of interest rules and an agreement to abide by them.

(ii) Applicable employees and affiliates must annually disclose the required information by the applicable acreage reporting date. Such disclosure must include the name of the policyholder or person with a substantial beneficial interest in the policyholder, and the type of relationship.

(iii) If the applicable employee or affiliate enters into a business, financial, or legal -relationship or becomes a relative with the policyholder after the annual disclosure, the applicable employee or affiliate must disclose the information required in subparagraph (D) within 15 days of entering the relationship.

(iv) The Company must evaluate the business, financial or legal relationship or the relationship with the relative to determine whether the applicable employee or affiliate is in violation of subsection (a), (b), or (c) or whether a 9 DB04/763432.0030/2554125.2 WP08 RED-LINED VERSION OF 2011 SRA—Appendix I (SECOND DRAFT): 02-23-10

conflict of interest review is necessary to determine if such violation has occurred. At a minimum, such reviews will be necessary when:

(I) The applicable employee or affiliate is in the immediate family of the policyholder or is a person with a substantial beneficial interest in the policyholder; or

(II) The business, financial or legal relationship with the policyholder has the potential to produce an incentive to create or inflate a loss because the applicable employee or affiliate, or a relative of the employee or affiliate, is entitled to a portion of the proceeds of the crop or the crop insurance payment or would otherwise receive a benefit from the policyholder based on the existence of crop insurance and their relationship.

(f) Notification

The Company shall notify FCIC within 3 business days in writing when it discovers that a Company employee or affiliate of the Company has violated the requirements of this section.

VII. CONTROLLED BUSINESS

(a) No individual (including a subagent) may receive directly, or indirectly through a Company or its affiliates, any compensation (including any commission, profit sharing, bonus, or any other direct or indirect benefit) for the sale and service of an eligible crop insurance contract if:

(1) The individual has a substantial beneficial interest, or a member of the individual’s immediate family has a substantial beneficial interest, in the eligible crop insurance contract; and

(2) The total compensation to be paid to the individual with respect to the sale or service of the eligible crop insurance contract that meets the condition described in paragraph 1 exceeds 30 percent, or the percentage specified in State law, whichever is less, of the total of all compensation received directly or indirectly by the individual for the reinsurance year.

(b) Not later than 90 days after the annual settlement date following the end of the reinsurance year, any individual that received directly or indirectly any compensation through a Company or its affiliates for the service or sale of any eligible crop insurance contract in the prior reinsurance year shall certify to the

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applicable Company, in format approved by FCIC, that the compensation that the individual received was in compliance with this paragraph.

(c) Non-compliance Deleted: <#>Not later than 120 150days after the annual settlement date following the end of the reinsurance year, the Company shall (1) The following individuals are subject to disqualification and civil fines provide FCIC a list of individuals who either under the procedures implementing section 515(h) of the Act (7 U.S.C. § failed to timely provide the required certification or whose certification 1515(h)) and any other procedures approved by FCIC implementing demonstrated non-compliance with the section 515(h): [Note: corrected statutory reference] requirements of this paragraph. If the Company fails to comply with this provision, FCIC may deny all or a portion of A&O subsidy or CAT (A) Individuals who failed to timely provide the required certification; LAE. ¶ Deleted: 1508 (B) Individuals who certified non-compliance with the requirements of this paragraph, except where non-compliance results from circumstances beyond the control of the individual; or

(C) Individuals who certified compliance but who have been determined to not be in compliance.

(2) Reinsurance will not be denied for the eligible crop insurance contracts associated with any violation with respect to paragraph (1).

VIII. TRAINING REQUIREMENTS Deleted: <#>The only way to avoid violation of this provision is to not write immediate family policies if writing such policies would The Company shall ensure that all of its employees, agents, agency employees, loss cause the individual to exceed the 30 percent adjusters, and contractors that act on behalf of the Company with respect to the selling, threshold. If the amount of compensation to which the individual is entitled under its servicing, and adjusting of eligible crop insurance contracts meet all the requirements contract with the Company or affiliate would contained in the Appendices and procedures issued by FCIC. result in the agent receiving more than 30 percent from immediate family policies, the individual is in violation. An individual cannot (a) All applicable employees, agents, agency employees, loss adjusters, and (1) pay back an amount necessary to be contractors must be trained in accordance with Appendix IV. compliant; (2) defer payments to determine whether they will violate the provision; or (3) take any other action to adjust the individuals (b) All employees, agents, and agency employees, who are involved in the selling and compensation owed under the contract with the servicing (except loss adjustment) of eligible crop insurance contracts, must be Company or affiliate.¶ licensed in the State in which they are doing business if required by the State; and

(c) All loss adjusters adjusting eligible crop insurance contracts must be certified by FCIC before they can conduct any loss adjustment. Certification of loss adjusters may be obtained by completing the training requirements in subsection (a) and:

(1) If any State in which the loss adjuster performs loss adjustment activities requires the loss adjuster to take a test which is directly related to crop insurance to obtain a license to adjust an eligible crop insurance contract, taking and passing the State test and obtaining the license required by the State;

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(2) If any State in which the loss adjuster performs loss adjustment activities does not require the loss adjuster to obtain a license to adjust an eligible crop insurance contract (including those cases where the loss adjuster is a company employee and the State excludes company employees from licensing requirements), taking and completing with a passing grade a proficiency testing program developed, approved, and implemented under procedures issued by FCIC or, if such FCIC-approved proficiency testing program is not available in the State, completing the training required by the Company under Appendix IV; or

(3) If any State in which the loss adjuster performs loss adjustment activities requires a test which is not crop insurance-specific (as determined by FCIC) to obtain a license to adjust an eligible crop insurance contract, taking and passing the State test and obtaining the license required by the State. [Beginning with the 2012 reinsurance year the provision will read: “…taking and completing with a passing grade a proficiency testing program developed, approved, and implemented under procedures issued by FCIC in lieu of obtaining a license in such State, or, if such FCIC- approved proficiency testing program is not available in the State, taking and passing the State test and obtaining the license required by the State.”]

(d) The Company shall not permit a loss adjuster to conduct any loss adjustment activity for the reinsurance year until he or she has been certified. FCIC will consider the loss adjuster to be certified after:

(1) The loss adjuster provides to the Company verifiable documentation showing that he or she has completed the required training, obtained the proper license or has taken and completed with a passing grade the applicable test or testing program specified in subsection (c); and

(2) The Company submits proper written or electronic verification to FCIC, as directed by FCIC.

(e) Any person who has been found in material noncompliance with any loss Deleted: <#>Loss adjusters shall be required to retake the required FCIC-approved adjustment policy, procedure, or training requirement approved by FCIC shall be proficiency testing program referenced in de-certified by FCIC. In such case, FCIC will provide written notification to the subsections (c)(2) and (3) every three years, Company, and the Company shall not permit that person to perform loss unless waived by FCIC.¶ adjustment activities until he or she has received the training specified by FCIC, has retaken and completed with a passing grade the required proficiency testing program, and has been certified by FCIC. A listing of persons decertified will be available to the Company.

(f) Allowing a loss adjuster to conduct any loss adjustment activity on a policy before he or she is properly certified or after he or she has been de-certified shall result in the denial of reinsurance, A&O subsidy, CAT LAE, or risk subsidy for all policies upon which such activity occurred.

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IX. OVERSIGHT AND CUT-THROUGH

(a) Whenever FCIC determines that the Company is unable to substantially fulfill an obligation that materially affects its performance under this Agreement with respect to some or all of the eligible crop insurance contracts it has in its book of business, FCIC may impose one or more of the following on the Company:

(1) Require additional reporting to FCIC of financial or operational information related to business conducted under the Agreement.

(2) Allow the placement of representatives of FCIC at any location of the Company and its service providers to monitor activities that directly or indirectly affect the performance of the Company’s obligations under this Agreement.

(3) Require the Company to obtain approval from FCIC of some or all decisions or actions (including but not limited to any transaction, payment, agreement, and servicing of eligible crop insurance contracts) taken or contemplated by the Company or its service providers that could directly or indirectly affect the performance of the Company’s obligations under this Agreement.

(4) Take all reasonable steps to preserve the assets and financial and operating capabilities of the Company to perform its obligations under this Agreement.

(5) Transfer to FCIC, or its designee, without further action of the Company, any or all eligible crop insurance contracts. With respect to any eligible crop insurance contract transferred to FCIC:

(A) FCIC will assume all obligations for unpaid losses whether occurring before or after the date of transfer regarding such eligible crop insurance contracts, and the Company must pay FCIC all funds in possession of the Company and its affiliates with respect to all such eligible crop insurance contracts transferred including, but not limited to, premiums collected or any payments from commercial reinsurers related to the book of business.

(B) FCIC, or its designee, will have the right to conduct all activities related to the sale and service of eligible crop insurance contracts.

(C) FCIC has the right to all uncollected premiums on all eligible crop insurance contracts.

(D) Any uncollected debts owed to the Company under an eligible crop insurance contract will become a debt owed to FCIC.

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(E) To the extent that FCIC contracts for an AIP or other entity to service the transferred eligible crop insurance contracts, the AIP or other entity will receive A&O subsidy for service the AIP or other entity must perform for such eligible crop insurance contracts in proportion to the amount of service required for the remainder of the crop year.

(6) With respect to eligible crop insurance contracts that are transferred to FCIC and when another AIP agrees to assume the eligible crop insurance contracts:

(A) The AIP will assume the obligations for unpaid losses whether occurring before or after the date of transfer regarding such eligible crop insurance contracts, unless otherwise determined by FCIC;

(B) FCIC will remit to the AIP any premium or any applicable payments from commercial reinsurers collected from the Company; and

(C) The AIP will receive A&O subsidy for services the AIP must perform for such eligible crop insurance contracts in proportion to the amount of service required for the remainder of the crop year.

(b) A Company in supervision, rehabilitation, liquidation, or any equivalent action by a State is presumed to be unable to substantially fulfill obligations that materially affect its performance under this Agreement with respect to some or all of the eligible crop insurance contracts it has in its book of business for the purposes of subsection (a).

(c) If either subsection (a)(4) or (5) is implemented with respect to another AIP, the Company, within the limits of its financial and operational resources, agrees to cooperate with FCIC in the transferring and servicing of such eligible crop insurance contracts.

X. SUPERVISION, REHABILITATION, AND LIQUIDATION

If the Company is placed in supervision, rehabilitation, liquidation, or any equivalent action by a State Insurance Department:

(a) The Company shall take all reasonable steps to facilitate a working relationship between FCIC and the State Insurance Department during the period the Company is in supervision, rehabilitation, liquidation, or any equivalent action.

(b) The Company shall take all reasonable steps to ensure that FCIC has access to information and use of the operating systems, records, equipment, or other

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property used in the administration of the Company’s book of business for as long as necessary to service the book of business.

(c) In liquidation (or equivalent situation):

(1) If FCIC has expended funds to keep the Company operational, including the payment of expenses already included in the A&O subsidy, or to pay other expenses not included in the A&O subsidy, when the Company was in supervision, rehabilitation liquidation, or any equivalent situation, with respect to the repayment of such funds, FCIC shall have priority over all other creditors except for expenses of the state supervisor, rehabilitator, liquidator, or equivalent person; and

(2) If the Company owes any other funds to FCIC not included in paragraph (1) with respect to the repayment of such funds, FCIC shall have priority over all other non-federal creditors.

(d) FCIC will have the right to conduct all activities related to the sale and service of eligible crop insurance contracts.

(e) The Company and its affiliates must pay to FCIC all funds in their possession with respect to all eligible crop insurance contracts including, but not limited to, premiums collected or any applicable payments from commercial reinsurers.

(f) Any uncollected debts or premiums owed to the Company under an eligible crop insurance contract will become a debt owed to FCIC.

(g) The Company and its affiliates shall:

(1) Properly and fully service all eligible crop insurance contracts until transferred or the applicable cancellation date, whichever is the later;

(2) Take all reasonable efforts to ensure that the Company’s commercial reinsurance applicable to its book of business remains in effect; and

(3) Not delay any payment to FCIC or the policyholder related to an eligible crop insurance contract.

(4) Those persons found not in compliance with subsection (g)(3) shall be subject to debarment from participating in the programs of FCIC and USDA.

XI. MEDIATION, ARBITRATION, LITIGATION AND ASSISTANCE

(a) The Company’s expenses incurred as a result of litigation are covered by the A&O subsidy. FCIC has no obligation to provide other funds to reimburse the Company for litigation costs.

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(b) In accordance with procedures established by FCIC, the Company may request FCIC to provide non-monetary assistance, including witnesses, documents, and direction or such other assistance for mediation, arbitration or litigation. FCIC will only consider the Company's request for assistance if the Company:

(1) Reports the matter in accordance with subsection (c);

(2) Immediately notifies FCIC in writing of the requested action setting forth the reasons such action would be in the best interests of FCIC;

(3) Presents all legal arguments favorable to its defense which it has a good faith basis to assert, including those suggested by FCIC; and

(4) Does not join FCIC as a party to the action unless FCIC agrees in writing to be joined as a party, or unless otherwise required by law.

Notwithstanding the foregoing, the availability of witnesses and documents shall be determined in accordance with applicable court rules when both the Company and FCIC have been named as co- defendants in litigation brought by policyholders or similarly situated litigants.

(c) The Company shall report to FCIC, in accordance with established procedures, disputes with policyholders in mediation, arbitration, litigation or legal action, within 30 days after the Company has been notified of such dispute.

(d) FCIC will, at its sole discretion, determine if the requested action under this section will be granted. The criteria to determine such action will be whether such action is in the best interest of FCIC and the Federal crop insurance program.

(e) Unless otherwise provided in this Agreement, FCIC will pay ultimate net losses for eligible crop insurance contracts of the Company in accordance with the provisions of section II.(b) of the Agreement:

(1) In addition to the amount of the claim, ultimate net loss may include interest owed to policyholders related to the eligible crop insurance contract that is included:

(A) In a final judgment against the Company by an arbitrator or a court of competent jurisdiction if FCIC determines that:

(i) Such interest resulted from the Company's substantial compliance with all applicable procedures in the selling and servicing of the eligible crop insurance contract; and

(ii) The award of such interest did not involve negligence or culpability on the part of the Company or its affiliates; and

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(B) In the settlement of any claim if FCIC, in addition to the determinations included above, determines that the settlement should be approved.

(2) In all arbitration and mediation cases or any other case that has been settled by the Company and policyholder:

(A) The Company must provide to FCIC all written statements from the arbitrator describing the issues in dispute, the factual findings, the determinations, and the amount and basis for any award;

(B) The Company must provide to FCIC all settlement agreements that contain, at a minimum, a statement of the issues in dispute and the amount of the settlement;

(C) The Company must provide to FCIC all written opinions of the court, all pleadings filed in the case, and other documentation requested by FCIC; and

(D) Failure of the Company to provide the required information in this subparagraph for an eligible crop insurance contract will result in denial of reinsurance for such contract.

(f) Under no circumstance are any punitive or consequential damages, attorney fees or any other costs, including court costs, included in the calculation of ultimate net loss.

(g) For the purposes of this subsection only, the term “settlement” means the compromise or resolution of a dispute under an eligible crop insurance contract between the Company and a policyholder.

XII. SANCTIONED PERSONS

The Company and its affiliates shall not use any person who has been debarred or suspended, or voluntarily excluded under 7 C.F.R. Part 3017, 7 C.F.R. § 400.456 or any Deleted: 2 CFR part 417 successor regulation by FCIC or any other U.S. Government Agency or disqualified by FCIC under section 515(h) (7 U.S.C. § 1515(h)), as applicable, in any manner which involves performance under this Agreement. Use of a disqualified, debarred, suspended or voluntarily excluded person or entity may subject the Company and affiliate to suspension and debarment in accordance with 7 C.F.R. 3017, 7 C.F.R. § 400.456 part 417 or any Deleted: 2 CFR successor regulation.

XIII. MEMBER - DELEGATE

No member of or delegate to Congress nor any resident commissioner will be permitted to have any share or part of this Agreement or receive any benefit that may arise therefrom, except that this provision will not be construed to apply to a benefit from this Agreement

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that accrues to a member of or delegate to Congress or any resident commissioner as a result of an interest in a corporation and the benefit is for the corporation’s general benefit. Members of or delegates to Congress or any resident commissioner are eligible to purchase a crop insurance contract for any crop in which they have an insurable interest.

XIV. DATA COLLECTION

The Company shall fully cooperate with FCIC in the collection of information required under section 2501A of the Food, Agriculture, Conservation and Trade Act of 1990, as amended by section 10708 of the Farm Security and Rural Investment Act of 2002.

XV. NON-DISCLOSURE

(a) The Company shall:

(1) Ensure that all persons having access to Protected Information, who are either employed by or have contracted with the Company, sign an Deleted: d Individual Non-disclosure Statement. If a person employed by or having a contract with the Company has previously executed a Non-disclosure Statement with another AIP, that person must either submit a copy of the original Non-disclosure Statement to the Company or sign and submit a new Non-disclosure Statement.

(2) Maintain copies of all Non-disclosure Statements (NDS) and have them available for examination.

(3) Ensure that its affiliates and contractors are fully aware of the need to protect information and the requirement to collect Non-disclosure Statements from all persons having access to Protected Information. Affiliates and contractors, in turn, must ensure that all persons having access to Protected Information who are either employed by or have contracted with them, must sign a Non-disclosure Statement.

(4) Ensure that all contractors or affiliate of the Company maintain copies of all such NDSs and have them available for examination. Deleted: ’

(5) By April 1st of each year, obtain an annual certification from each of its contractors and affiliates that the respective contractor or affiliate has obtained an NDS from each person who has access to any Protected Deleted: Non-disclosure Statement Information and who is employed by or has a contract with the contractor or the affiliate. The purpose of the annual certification by the contractor or affiliate to the Company is to ensure that the contractor or affiliate annually reviews its files to determine that any new employees or other persons having access to Protected Information have signed an NDS. The Deleted: Non-disclosure Statement written and signed certification must be from an officer of the affiliate or contractor to the Company and can state: “I hereby certify that [insert the name of the affiliate or contractor] has reviewed its files and, as of [insert 18 DB04/763432.0030/2554125.2 WP08 RED-LINED VERSION OF 2011 SRA—Appendix I (SECOND DRAFT): 02-23-10

date review was completed], all employees or other persons having access to Protected Information have signed a Non-disclosure Statement.”

(6) Maintain copies of all certifications from contractors or affiliates and have them available for examination. Deleted: inspection

(7) Ensure that all persons who are employed by or have a contract with the Company have executed an NDS prior to obtaining access to Protected Deleted: Non-disclosure Statement Information.

(8) Notify contractors and affiliates regarding the requirement that all persons employed by or having a contract with the contractor or affiliate must sign an NDS prior to obtaining access to Protected Information. Deleted: Non-disclosure Statement

(9) Provide an annual certification to FCIC in the Plan of Operations according to Appendix II that it has obtained an NDS from all persons Deleted: Non-disclosure Statement who have access to any protected information and who are employed by or have a contract with the AIP; and, in the case of persons employed by or having a contract with a contractor or affiliate, has obtained a certification from the contractor or affiliate that the contractor or affiliate has obtained an NDS from all such persons. The purpose of the annual certification by Deleted: Non-disclosure Statement the Company to FCIC is to ensure that the Company annually reviews its files to determine that any new employees or other persons having access to Protected Information have signed an NDS and that all affiliates and Deleted: Non-disclosure Statement contractors have provided an annual certification as to the NDSs signed by Deleted: ’ their employees. The written and signed certification must be from an officer of the Company and can state: “I hereby certify that [insert the name of the Company] has reviewed its files and as of [insert date review was completed], all employees or other persons having access to Protected Information have signed a Non-disclosure Statement and all affiliates and contractors have certified that their employees and other persons having access to Protected Information have signed Non-disclosure Statements.”

(10) Not provide Comprehensive Information Management System (CIMS) information to anyone who has not signed and submitted an individual NDS to the Company or the respective contractor or affiliate. Deleted: Non-disclosure Statement

(b) The Company and its contractors and affiliates may use electronic versions of the NDS which incorporate either a digital signature or an authentication system to Deleted: Non-disclosure Statement properly identify the submitter. Electronic records of signed or authenticated NDSs must be retained by the respective contractor, or affiliate and be available Deleted: Non-disclosure Statements for examination.

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APPENDIX II PLAN OF OPERATIONS

The Plan of Operations (Plan) filed by the Company must contain the information stated herein, and the Company must certify the accuracy and completeness of the Plan. Information, documents, exhibits, or forms are to be identified in the Plan as Exhibits to correspond with each section and paragraph. The Company must file all Exhibits required herein annually, and, as necessary, file any addition or revision to specific Exhibits during the reinsurance year. Any Exhibit not filed when required may delay approval of the Plan. The Company may be required to provide additional information as may be necessary to clarify or provide further detail in support of the Company’s or MGA’s financial or operational capacity. The Company’s submission of the Plan, certification of the Plan’s completeness and accuracy, and compliance with the terms of Appendix II shall not deem the Company a government contractor or otherwise generally subject to other provisions of the Federal Acquisition Regulation System, as it instead is a party to a cooperative financial assistance agreement.

I. Insurance Company General

(a) The name, address, phone number, web site address, and tax identification number of the Company. (Note: If the Company’s Plan is approved, information from this Exhibit other than tax identification number will be released on RMA’s public web site.)

(b) The names, address, and tax identification numbers of all PICs and, upon request, a copy of agreements between the Company, or its MGA, and PICs.

(c) If the Company elects to use an MGA:

(1) The name, phone number, address, web site address, and tax identification number of the MGA. (Note: If the Company’s Plan is approved, information from this Exhibit other than tax identification number will be released on RMA’s public web site.)

(2) A copy of all agreements between the MGA and the Company that relate to eligible crop insurance contracts reinsured under this Agreement; and

(3) A letter from an officer of the Company that empowers the entity identified in subparagraph a) to act as the MGA for the Company for the reinsurance year. The officer must be listed in the Company’s Annual Statement filed with the State in which the Company is domiciled and have the authority to act on behalf of the Company.

II. Certifications

Each Exhibit in this section must be signed by the person authorized to sign the Agreement on behalf of the Company, unless otherwise specified.

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(a) In accordance with section I of Appendix I, the Company must submit its certification regarding procurement integrity.

(b) In accordance with section II of Appendix I, the Company must submit its certification regarding a drug free workplace.

(c) In accordance with section III of Appendix I, the Company must complete and submit OMB Form LLL, Disclosure of Lobbying Activities (Exhibit B.3), and specify the period of time to which such completed form applies.

(d) In accordance with section IV.(p) of the Agreement, the Company must submit its certification regarding compliance with discrimination laws.

(e) The Company must submit its certification that the Company, its MGA as applicable, its affiliates, and its PICs are properly licensed under the insurance laws or regulations of all States in which the Company sells and services eligible crop insurance contracts reinsured under this Agreement.

(f) The Company must submit its certification regarding the Company’s ability to meet its obligations under the current and any prior Agreement, as applicable.

(g) The Company must submit its certification regarding non-disclosure, as specified in Appendix I, section XV (a)(9).

(h) The Company must submit its certification that the information required by CCR (www.ccr.gov) has been provided. This information will be used to process payments.

III. Financial Information

(a) Upon specific request by FCIC, the Company must provide the following (FCIC will normally obtain this information directly from the National Association of Insurance Commissioners):

(1) The Statutory Annual Statement for the most recent reporting year.

(2) The Statutory Quarterly Statements for the most recent quarter and throughout the reinsurance year, within 10 days after such statements are filed with the State.

(3) The Statutory Management Discussion and Analysis, within 10 days of making the filings in subparagraph c.

(b) The Company must provide the following:

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(1) If prepared in the normal course of business, annual audited GAAP financial statements for the previous reporting year, by June 1 preceding the start of the reinsurance year.

(2) If prepared in the normal course of business, quarterly GAAP financial statements throughout the reinsurance year, within 45 days of the end of each quarter.

(3) If prepared in the normal course of business, annual Security Exchange filings (i.e. 10K), if applicable, within 10 days of making such filings.

(4) If prepared in the normal course of business, quarterly Security Exchange filings (i.e. 10Q) within the reinsurance year, if applicable, within 10 days of making such filings.

(5) Internal controls or management recommendations received from an independent auditor regarding the Company, by June 1 preceding the start of the reinsurance year.

(6) Actuarial Opinion of Reserves for the most recent reporting year, by June 1 preceding the start of the reinsurance year.

(7) The most recent State Insurance Department Examination Report, within 30 days of receipt of such report.

(c) If an MGA is designated, the MGA must provide the following:

(1) If prepared in the normal course of business, annual audited GAAP financial statements for the previous calendar or fiscal year, as applicable, by June 1 preceding the start of the reinsurance year.

(2) If prepared in the normal course of business, quarterly GAAP financial statements throughout the reinsurance year, within 45 days of the end of each quarter.

(3) If prepared in the normal course of business, annual Security Exchange filings (i.e. 10K), if applicable, within 10 days of making such filings.

(4) If prepared in the normal course of business, quarterly Security Exchange filings (i.e. 10Q) within the reinsurance year, if applicable, within 10 days of making such filings.

(5) Internal controls or management recommendations received from an independent auditor regarding the MGA, by June 1 preceding the reinsurance year.

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(d) The Company must provide an explanation for any ratio falling outside the requirements of 7 C.F.R. §§ 400.170-176.

(e) The Company must provide a description of all financial relationships that pertain to its crop insurance business, including:

(1) All entities in any controlled group of corporations, as defined in 26 C.F.R. § 1563-1T, to which the Company would be considered a member and the Company;

(2) The Company and any entity in any controlled group of corporations to which the Company is considered a member and any entity or affiliate providing services to any approved insurance providers under this Agreement;

(3) Any MGA and any entities in any controlled group of corporations to which the MGA would be considered a member: and

(4) Any MGA and any entity in any controlled group of corporations to which the Company is considered a member and any entity or affiliate providing services to any AIPs under this Agreement.

(f) The Company must provide Agent Compensation Reports, itemizing agent commissions and other agent compensation for eligible crop insurance contracts reinsured by FCIC as specified in the Agent Compensation Template and completed for the:

(1) previous reinsurance year’s actual data;

(2) current reinsurance year’s estimated data; and

(3) upcoming reinsurance year’s projected data.

(g) The Company must provide Loss Adjustment Expense Reports, itemizing loss adjuster expenses for eligible crop insurance contracts reinsured by FCIC, as specified in the Loss Adjustment Expense Template and completed for the:

(1) previous reinsurance year’s actual data;

(2) current reinsurance year’s estimated data; and

(3) upcoming reinsurance year’s projected data.

(h) The Company must provide Total Expense Reports, itemizing total expenses for all eligible crop insurance contracts reinsured by FCIC, prepared according to the National Association of Insurance Commissioners Annual Statement Instructions, as specified in the Total Expense Template, and to be completed for the:

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(1) previous reinsurance year’s actual data;

(2) current reinsurance year’s estimated data; and

(3) upcoming reinsurance year’s projected data.

(i) Posted reserves for which estimated liability exceeds five percent of policyholder surplus for:

(1) all open contingent liabilities; and

(2) all pending arbitration, mediation, or litigation.

(j) Upon request, with respect to the Company and MGA, if applicable, the Company must provide:

(1) Actual and estimated cash flow documentation;

(2) Copies of all line of credit agreements with financial institutions used to fund any expenses, including amounts due FCIC; and

(3) Any other financial information related to the Company or the MGA that would assist FCIC in determining the financial capacity to perform under the terms of this Agreement.

IV. Insurance Operations

The Plan shall include:

(a) The name, title, mailing address, e-mail address, office telephone numbers, and fax telephone numbers of the officer or employee authorized by the Company to sign and certify the Operations Report.

(b) The names, titles, mailing addresses, e-mail addresses, office telephone numbers, and fax telephone numbers of at least two officers or employees authorized by the Company, and two officers or employees authorized by the MGA, if an MGA is designated by the Company, as managers of the eligible crop insurance contracts reinsured under the Agreement. Each person will act as liaison or contact between the Company and FCIC regarding this Agreement.

(c) The names, mailing addresses, e-mail addresses, office telephone numbers, and fax telephone numbers of the office of the Company, or any entity, that qualifies as a service provider and a description of the services they provide.

(d) The names, mailing addresses, e-mail addresses, office telephone numbers, and fax telephone numbers of the office of the Company, or any entity, that provides a service related to eligible crop insurance contracts reinsured under this Agreement

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that have not been provided under section IV(c). and a description of the services they provide, excluding agents, agencies, and loss adjusters.

(e) An organizational chart showing the names and positions of senior management employees engaged in Federal crop insurance operations. The employees include individuals performing the following functions: chief executive officer, chief operations officer, chief financial officer, and the highest ranking persons responsible for information technology, underwriting, claims, quality control, training and development, sales and marketing, compliance, reinsurance, and field or service office supervisors. If a person performs more than one of the foregoing functions, the chart shall so indicate.

(f) The name and address of the Company or MGA, if applicable, and the bank that will make Electronic Funds Transfer payments to FCIC for the Company.

(g) The name, street address, city, county, state, country, city code, county code, state code, country code, (codes can be obtained from http://www.itl.nist.gov/fipspubs/55new/nav-top-fr.htm and http://www.itl.nist.gov/fipspubs/10-3tab2.htm ) and Congressional District for the organization to whom payments from FCIC should be remitted for amounts due on Monthly and Annual Settlement reports.

(h) A declaration as to the Company’s intention to use the Escrow Agreement and its associated procedures, for reimbursement by FCIC to cover losses paid by the Company. If the Company elects to use the Escrow Agreement, the Company must provide:

(1) An executed copy of the Agreement regarding the Reinsurance Escrow Arrangement between the Company and FCIC; and

(2) An authorization from the Company’s board of directors for the individual signing the Agreement regarding the Reinsurance Escrow Arrangement on behalf of the Company; and

(3) An executed copy of the Escrow Agreement between the Bank and FCIC;

(4) An authorization from the bank’s board of directors for the individual signing the Escrow Agreement on behalf of the Bank.

(i) The Training and Performance Evaluation Plan (TPEP) and the Training and Performance Evaluation Report (TPER) required in Appendix IV . The TPEP will be approved if all elements identified in Appendix IV are contained therein.

(j) The Quality Control Plan required in Appendix IV . The Quality Control Plan will be approved if all elements identified in Appendix IV are contained therein.

(k) With respect to section II.(a)(5). of the Agreement:

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(1) The Company must review its contract arrangements with any affiliate that is also a cooperative or trade association or any affiliate that, in turn, has a contractual arrangement with a cooperative or trade association to determine whether the cooperative or trade association seeks to qualify for payments to producers under section 508(b)(5)(B) of the Act (7 U.S.C. § 1508 (b)(5)(b)). ( If a cooperative or trade association seeks to qualify under section 508(b)(5)(B) after the date the Plan is submitted to FCIC, the Company must submit the items listed below and receive written FCIC approval before the cooperative or trade association will be deemed to qualify under section 508(b)(5)(B):

(A) The names, addresses, and telephone numbers of each cooperative association or trade association with which the Company or its affiliates intends to enter into a licensing or other financial agreement or contract authorized by sections 508(b)(5)(B), or has entered into such agreements;

(B) A copy of the agreement or contract with the cooperative association or trade association and a list of the states where the cooperative association or trade association will return all or part of the CAT administrative fee received from the Company to its producers; and

(C) For each State listed in subparagraph (B), a letter from the State Insurance Department stating whether the payment of all or a portion of the CAT administrative fees on behalf of producers is in compliance with the rebating laws of such State.

(2) For those cooperative or trade associations previously determined by FCIC to have qualified under section 509(a)(9)(B)(iii), the Company must provide a current certification from an officer of the cooperative or trade association that it will make any payments to its producers during the reinsurance year under the same terms and conditions under which it received original approval from FCIC.

(l) E-Business Implementation Plan: The Company must include the following information to demonstrate compliance with the Freedom to E-File Act.

(1) The process the Company will use to provide and receive electronically all required forms and other information concerning the Federal crop insurance program. The Company must provide a description of:

(A) The process the Company will use to allow producers to file electronically all paperwork required for participation in the program.

(B) The type of electronic signature that will be used by producers. 7 DB04/763432.0030/2554194.1 WP08 CLEAN VERSION OF 2011 SRA—Appendix II (SECOND DRAFT): 02-23-10

(C) The name, address and e-mail address for one contact person with the vendor being used to provide electronic signatures.

(D) The security measures the Company will use to protect the confidential nature of the data and information submitted by producers from being reviewed, revised or otherwise used by unauthorized persons. A third-party certification of security measures must be obtained from a recognized security certification firm and must be provided.

(E) The process the Company will use to document revisions to data and information submitted by producers.

(F) The storage, backup, and retention procedures being used by the Company for electronically filed documents. Provide the name, address, and phone number for one contact person for the Company who manages the storage and backup procedures for the Company.

(2) The names, URL's, facsimile numbers, and mailing addresses of each location where producers may electronically access and file the paperwork required for participation in the program.

(3) Describe the directions being provided with respect to how to access the information and forms, properly complete and submit them, meet filing deadlines, obtain user ID and password, etc.

(4) The online responsibilities of the crop insurance agent to each producer who files or retrieves required paperwork electronically with the Company.

(5) The process for obtaining consent from the producer to electronically conduct crop insurance business on a partial or complete basis with the Company.

(6) Provide the procedures a producer must use to withdraw consent to electronically conduct crop insurance business on a partial or complete basis with the Company.

(7) Provide the procedures that a producer must use to request a paper copy of an electronic record.

(8) The statement of the required hardware and software needed by a producer to access, obtain, and retain electronic documents from the Company.

(m) A general description of the Company’s Information Technology architecture and operating environment (e.g., hardware and software). Indicate whether these

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systems are managed in-house or through service providers, and the names of any such service providers. The description should, at a minimum, include the types and major version numbers of operating systems and databases; major programming languages and software products; and the name and major version number, if applicable, of any company’s developed system that interacts with RMA systems, including a general description of the network architecture and security capabilities of such systems. and industry standards or methodologies used for data exchange and software development.

(n) [revised version of former item 7] A complete description of the process the Company will use to retain all official records relative to eligible crop insurance contracts reinsured under this Agreement (e.g., applications, acreage reports, summaries of coverage, claims of loss, etc.). Include the office addresses and telephone numbers of the locations where such records are retained, and if original insurance documents are retained by sales agencies or sales agents, the Company must report those official records’ location(s) in accordance with Appendix III. Include a certification that the Company has in place the security measures to ensure the confidentiality, integrity, and availability of the records in a manner consistant with FISMA. If records are kept electronically, include the Company’s principal and backup server locations for the electronic storage and retrieval of such records.

(o) If requested by FCIC, any information related to the Company or MGA that would assist FCIC in determining the operational capacity to perform under the terms of this Agreement.

V. FCIC Reinsurance Business Plan

The Plan shall include:

(a) The maximum reinsurable net book premium volume for which the Company requests reinsurance. (This may be more than the total provided in Exhibit (V)(b)).

(b) A designation as to the States in which the Company wants to be authorized to sell and service eligible crop insurance contracts and estimates of the net book premium assigned to each fund within each designated State as specified in the Estimated Premium Template. The State in which the Company is officially domiciled must be designated.

(c) A declaration of the percent of the net book premiums and associated liability for ultimate net losses the Company will retain in the Commercial Fund for each State designated in accordance with section E.2, as specified in the Commercial Fund Template.

(1) Selling and servicing eligible crop insurance contracts in a State for which no declaration has been made under this subsection will result in the

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retention of 100 percent net book premium and associated liability for ultimate net losses for that State.

(2) In the case of the Company acquiring another AIP, or the Company merging with another AIP, and the declarations made under subsection E.3. are different between the Company and AIP, in its sole discretion, FCIC will determine the percent of the combined net book premiums and associated liability for ultimate net losses the Company will retain in each State in order to ensure that losses are not shifted to FCIC.

(d) The Company’s intention to reinsure a portion of its net liability (after FCIC reinsurance) in accordance with section II(b)(12) of the Agreement. The Company must submit, within 10 days of execution of reinsurance documentation, a copy of the reinsurance documentation (agreements or cover notes) related to eligible crop insurance contracts reinsured under this Agreement. The reinsurance documentation must be executed by all parties and include:

(1) The percent subscribed by each reinsurer to each arrangement, treaty, or binder, and the names of each reinsurer, intermediary, or broker; and

(2) A description of the type of reinsurance, retentions, attachment points and limits, aggregate limits, minimum deposit, premium rates, and all other applicable terms.

VI. Risk Assessment and Contingency Plan

The risk assessment shall consist of, at a minimum, the following:

(a) A copy of the latest maximum probable loss risk assessment, whether prepared by or on behalf of the Company. The assessment must detail the magnitude and frequencies of the risks assessed and include a description of the methodology used.

(b) For each of the risks listed in subsection (c):

(1) An estimate of the probability of occurrence;

(2) A rationale for the estimate;

(3) An assessment of the impact on the Company; and

(4) A contingency plan for how the Company will be able to meet the obligations under the Agreement should the event described by such risk occur. The plan must describe:

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(A) How the Company will ensure that sufficient resources will be available to continue operations and service eligible crop insurance contracts for current and any previous reinsurance years, as applicable;

(B) How the Company would meet its obligations for continuity of indemnity payments to producers, to accurately calculate premium and indemnities, to bill premium timely, and to prevent data corruption;

(C) If the Company uses an MGA, identify how the Company will obtain or retain sufficient financial and operational capacity to manage a delivery system through resources other than those currently provided by the MGA;

(D) How the Company will ensure that sufficient cash resources will be retained to continue servicing operations and meet all requirements of the Agreement;

(E) How the Company will ensure that it retains sufficient expertise in crop insurance sales, underwriting, loss adjustment, quality control, data processing, and all other facets of crop insurance sales and service to continue operations until all requirements of the Agreement have been met; and

(F) The physical security of current and backup systems; how backup systems will be deployed in the event they are needed; an estimate as to how long before normal operations may be expected to resume in the event the backup system is needed as the primary operational system; and how personally identifiable information will be protected in a transition from primary to backup systems.

(c) Risks:

(1) Crop insurance expenses exceed the A&O subsidy provided by FCIC.

(2) Underwriting gains are insufficient to offset any expense deficit identified in paragraph (1).

(3) Policyholder surplus decreases more than ten percent in any calendar year.

(4) A significant interruption occurs in computer hardware or software that affects operations or data transfer capabilities (such as due to a computer virus, security breach, communications failure, etc.).

(5) A rating agency determines the Company’s ability to meet its current obligations is marginal and that its financial condition is vulnerable.

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(6) Lines of credit or other financial arrangements become unavailable or is inadequate to meet cash flow needs.

(7) Commercial reinsurance becomes unavailable or its cost rises (or ceding commissions received decline) significantly.

(8) If the Company uses an MGA or service providers, the MGA or service provider:

(A) Is no longer able to perform the requirements of its agreement with the Company;

(B) No longer has the financial or operational capacity to enable the Company to comply with the requirements of the Agreement; or

(C) Becomes ineligible to participate in the Federal crop insurance program.

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(9) Any other material threat or risk that the Company may be aware of or have prior knowledge of that should be considered in the selling and servicing of eligible crop insurance contracts reinsured under the Agreement.

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APPENDIX II Formatted: Line spacing: single PLAN OF OPERATIONS

The Plan of Operations (Plan) filed by the Company must contain the information stated herein, and the Company must certify the accuracy and completeness of the Plan. Information, documents, exhibits, or forms are to be identified in the Plan as Exhibits to correspond with each Deleted: , section and paragraph. The Company must file all Exhibits required herein annually, and, as necessary, file any addition or revision to specific Exhibits during the reinsurance year. Any Exhibit not filed when required may delay approval of the Plan. The Company may be required to provide additional information as may be necessary to clarify or provide further detail in support of the Company’s or MGA’s financial or operational capacity. The Company’s submission of the Plan, certification of the Plan’s completeness and accuracy, and compliance with the terms of Appendix II shall not deem the Company a government contractor or otherwise generally subject to other provisions of the Federal Acquisition Regulation System, as it instead is a party to a cooperative financial assistance agreement.

I. Insurance Company General

(a) The name, address, phone number, web site address, and tax identification number Deleted: [formerly 1] of the Company. (Note: If the Company’s Plan is approved, information from this Exhibit other than tax identification number will be released on RMA’s public web site.)

(b) The names, address, and tax identification numbers of all PICs and, upon request, Deleted: [formerly 2] a copy of agreements between the Company, or its MGA, and PICs.

(c) If the Company elects to use an MGA: Deleted: [formerly 3 and 4]

(1) The name, phone number, address, web site address, and tax identification number of the MGA. (Note: If the Company’s Plan is approved, Deleted: ; information from this Exhibit other than tax identification number will be released on RMA’s public web site.)

(2) A copy of all agreements between the MGA and the Company that relate Deleted: s to eligible crop insurance contracts reinsured under this Agreement; and

(3) A letter from an officer of the Company that empowers the entity identified in subparagraph a) to act as the MGA for the Company for the reinsurance year. The officer must be listed in the Company’s Annual Statement filed with the State in which the Company is domiciled and have the authority to act on behalf of the Company.

II. Certifications

Each Exhibit in this section must be signed by the person authorized to sign the Agreement on behalf of the Company, unless otherwise specified.

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(a) In accordance with section I of Appendix I, the Company must submit its Deleted: [formerly 23] certification regarding procurement integrity.

(b) In accordance with section II of Appendix I, the Company must submit its Deleted: [formerly 24] certification regarding a drug free workplace.

(c) In accordance with section III of Appendix I, the Company must complete and Deleted: [formerly 25] submit OMB Form LLL, Disclosure of Lobbying Activities (Exhibit B.3), and specify the period of time to which such completed form applies.

(d) In accordance with section IV.(p) of the Agreement, the Company must submit its Deleted: [formerly 26] certification regarding compliance with discrimination laws.

(e) The Company must submit its certification that the Company, its MGA as Deleted: [formerly 9] Certification from t applicable, its affiliates, and its PICs are properly licensed under the insurance laws or regulations of all States in which the Company sells and services eligible crop insurance contracts reinsured under this Agreement.

(f) The Company must submit its certification regarding the Company’s ability to Deleted: [formerly 10.q] A certification from meet its obligations under the current and any prior Agreement, as applicable. t

(g) The Company must submit its certification regarding non-disclosure, as specified Deleted: [new according to MGR-09-001] in Appendix I, section XV (a)(9). The certification from t

(h) The Company must submit its certification that the information required by CCR Deleted: [new] A certification from t (www.ccr.gov) has been provided. This information will be used to process payments.

III. Financial Information

(a) Upon specific request by FCIC, the Company must provide the following (FCIC will normally obtain this information directly from the National Association of Insurance Commissioners):

(1) The Statutory Annual Statement for the most recent reporting year. Deleted: (1) Deleted: [formerly 10.a]

(2) The Statutory Quarterly Statements for the most recent quarter and Deleted: (2) [formerly 10.b] throughout the reinsurance year, within 10 days after such statements are filed with the State.

(3) The Statutory Management Discussion and Analysis, within 10 days of Deleted: [formerly 10.d] making the filings in subparagraph c.

(b) The Company must provide the following:

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(1) If prepared in the normal course of business, annual audited GAAP Deleted: [formerly 10.g and 10.j] financial statements for the previous reporting year, by June 1 preceding Formatted: Font: Not Italic the start of the reinsurance year. Formatted: Font: Not Italic

(2) If prepared in the normal course of business, quarterly GAAP financial Deleted: [formerly 10.j] statements throughout the reinsurance year, within 45 days of the end of Deleted: Q each quarter.

(3) If prepared in the normal course of business, annual Security Exchange Deleted: [formerly 10.j] filings (i.e. 10K), if applicable, within 10 days of making such filings.

(4) If prepared in the normal course of business, quarterly Security Exchange Deleted: [formerly 10.j] filings (i.e. 10Q) within the reinsurance year, if applicable, within 10 days of making such filings.

(5) Internal controls or management recommendations received from an Deleted: [formerly 10.c] independent auditor regarding the Company, by June 1 preceding the start of the reinsurance year.

(6) Actuarial Opinion of Reserves for the most recent reporting year, by June Deleted: [formerly 10.f] 1 preceding the start of the reinsurance year.

(7) The most recent State Insurance Department Examination Report, within Deleted: [formerly 10.e] 30 days of receipt of such report.

(c) If an MGA is designated, the MGA must provide the following:

(1) If prepared in the normal course of business, annual audited GAAP Deleted: [formerly 10.g & 10 j] financial statements for the previous calendar or fiscal year, as applicable, Deleted: A by June 1 preceding the start of the reinsurance year.

(2) If prepared in the normal course of business, quarterly GAAP financial Deleted: [formerly 10.g & 10 j] statements throughout the reinsurance year, within 45 days of the end of Deleted: Q each quarter.

(3) If prepared in the normal course of business, annual Security Exchange Deleted: [formerly 10.g & 10 j] filings (i.e. 10K), if applicable, within 10 days of making such filings. Deleted: A

(4) If prepared in the normal course of business, quarterly Security Exchange Deleted: [formerly 10.g & 10 j] filings (i.e. 10Q) within the reinsurance year, if applicable, within 10 days Deleted: Q of making such filings.

(5) Internal controls or management recommendations received from an Deleted: [formerly 10.c] independent auditor regarding the MGA, by June 1 preceding the reinsurance year.

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(d) The Company must provide an explanation for any ratio falling outside the Deleted: [formerly 10.h] requirements of 7 C.F.R. §§ 400.170-176.

(e) The Company must provide a description of all financial relationships that pertain Deleted: [formerly 10.i] to its crop insurance business, including: Deleted: F Deleted: as follows: (1) All entities in any controlled group of corporations, as defined in 26 Deleted: <#>A description of all financial C.F.R. § 1563-1T, to which the Company would be considered a member and the relationships between:¶ Company; Formatted: Indent: Left: 1", First line: 0", Line spacing: single, Numbered + Level: 4 + (2) The Company and any entity in any controlled group of corporations to Numbering Style: 1, 2, 3, … + Start at: 1 + which the Company is considered a member and any entity or affiliate providing Alignment: Left + Aligned at: 1.75" + Indent at: 2" services to any approved insurance providers under this Agreement; Deleted: and

(3) Any MGA and any entities in any controlled group of corporations to Deleted: <#>If the Company elects to use an MGA, as identified in section I.(c), a which the MGA would be considered a member: and description of all financial relationships between:¶ (4) Any MGA and any entity in any controlled group of corporations to which The the Company is considered a member and any entity or affiliate providing services Deleted: The to any AIPs under this Agreement. Deleted: approved insurance providers

(f) The Company must provide Agent Compensation Reports, itemizing agent Deleted: [formerly 10.m] commissions and other agent compensation for eligible crop insurance contracts Formatted: Line spacing: single reinsured by FCIC as specified in the Agent Compensation Template and Deleted: that completed for the: Deleted: es

(1) previous reinsurance year’s actual data; Deleted: (must be independently audited)

(2) current reinsurance year’s estimated data; and

(3) upcoming reinsurance year’s projected data.

(g) The Company must provide Loss Adjustment Expense Reports, itemizing loss Deleted: [formerly 10.n] adjuster expenses for eligible crop insurance contracts reinsured by FCIC, as specified in the Loss Adjustment Expense Template and completed for the:

(1) previous reinsurance year’s actual data; Deleted: (must be independently audited)

(2) current reinsurance year’s estimated data; and

(3) upcoming reinsurance year’s projected data.

(h) The Company must provide Total Expense Reports, itemizing total expenses for Deleted: [formerly 10.o] all eligible crop insurance contracts reinsured by FCIC, prepared according to the National Association of Insurance Commissioners Annual Statement Instructions, as specified in the Total Expense Template, and to be completed for the:

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(1) previous reinsurance year’s actual data; Deleted: (must be independently audited)

(2) current reinsurance year’s estimated data; and

(3) upcoming reinsurance year’s projected data.

(i) Posted reserves for which estimated liability exceeds five percent of policyholder Deleted: [formerly 10.p] surplus for:

(1) all open contingent liabilities; and

(2) all pending arbitration, mediation, or litigation.

(j) Upon request, with respect to the Company and MGA, if applicable, the Company Deleted: [formerly 10.k, 10.l, and 10.s] must provide: Deleted: :

(1) Actual and estimated cash flow documentation; Deleted: [formerly 10.k] Deleted: or (2) Copies of all line of credit agreements with financial institutions used to Deleted: [formerly 10.l] fund any expenses, including amounts due FCIC; and Deleted: .

(3) Any other financial information related to the Company or the MGA that Deleted: [formerly 10.s] would assist FCIC in determining the financial capacity to perform under the terms of this Agreement.

IV. Insurance Operations

The Plan shall include: Formatted: Indent: Left: 0.5", Line spacing: single, No bullets or numbering (a) The name, title, mailing address, e-mail address, office telephone numbers, and Deleted: [formerly 5] fax telephone numbers of the officer or employee authorized by the Company to Formatted: Line spacing: single sign and certify the Operations Report.

(b) The names, titles, mailing addresses, e-mail addresses, office telephone numbers, Deleted: [formerly 6] and fax telephone numbers of at least two officers or employees authorized by the Company, and two officers or employees authorized by the MGA, if an MGA is designated by the Company, as managers of the eligible crop insurance contracts reinsured under the Agreement. Each person will act as liaison or contact between the Company and FCIC regarding this Agreement.

(c) The names, mailing addresses, e-mail addresses, office telephone numbers, and Deleted: [formerly 7, also see item IV(n)] fax telephone numbers of the office of the Company, or any entity, that qualifies as a service provider and a description of the services they provide.

(d) The names, mailing addresses, e-mail addresses, office telephone numbers, and Deleted: [formerly 8] fax telephone numbers of the office of the Company, or any entity, that provides a service related to eligible crop insurance contracts reinsured under this Agreement

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that have not been provided under section IV(c). and a description of the services they provide, excluding agents, agencies, and loss adjusters.

(e) An organizational chart showing the names and positions of senior management Deleted: [formerly 10.i] employees engaged in Federal crop insurance operations. The employees include Deleted: , individuals performing the following functions: chief executive officer, chief Deleted: , and years of crop insurance operations officer, chief financial officer, and the highest ranking persons experience responsible for information technology, underwriting, claims, quality control, Deleted: key personnel training and development, sales and marketing, compliance, reinsurance, and field Deleted: Any changes to the key or service office supervisors. If a person performs more than one of the foregoing personnelemployees identified on this chart must be reported within 30 days to FCIC in functions, the chart shall so indicate. writing. (f) The name and address of the Company or MGA, if applicable, and the bank that Deleted: Key personnel will make Electronic Funds Transfer payments to FCIC for the Company. Deleted: s Deleted: managing (g) The name, street address, city, county, state, country, city code, county code, state Deleted: , supervising, or directing code, country code, (codes can be obtained from Deleted: operations http://www.itl.nist.gov/fipspubs/55new/nav-top-fr.htm and Deleted: information technology, http://www.itl.nist.gov/fipspubs/10-3tab2.htm ) and Congressional District for the organization to whom payments from FCIC should be remitted for amounts due Deleted: [formerly 15] on Monthly and Annual Settlement reports. Deleted: [formerly 16]

(h) A declaration as to the Company’s intention to use the Escrow Agreement and its Deleted: [formerly 17] associated procedures, for reimbursement by FCIC to cover losses paid by the Company. If the Company elects to use the Escrow Agreement, the Company must provide:

(1) An executed copy of the Agreement regarding the Reinsurance Escrow Arrangement between the Company and FCIC; and

(2) An authorization from the Company’s board of directors for the individual signing the Agreement regarding the Reinsurance Escrow Arrangement on behalf of the Company; and

(3) An executed copy of the Escrow Agreement between the Bank and FCIC;

(4) An authorization from the bank’s board of directors for the individual signing the Escrow Agreement on behalf of the Bank. Deleted: [formerly 21] (i) The Training and Performance Evaluation Plan (TPEP) and the Training and Deleted: Approval of the TPEP in the Plan of Operations is not a determination of the Performance Evaluation Report (TPER) required in Appendix IV . The TPEP will sufficiency of the Company’s training and be approved if all elements identified in Appendix IV are contained therein. evaluation program. Deleted: [formerly 22] (j) The Quality Control Plan required in Appendix IV . The Quality Control Plan will Deleted: Approval of the Quality Control be approved if all elements identified in Appendix IV are contained therein. Plan in the Plan of Operations is not a determination of the sufficiency of the Company’s quality controls. (k) With respect to section II.(a)(5). of the Agreement: Deleted: [formerly 27] 6 DB04/763432.0030/2554194.1 WP08 RED-LINED VERSION OF 2011 SRA—Appendix II (SECOND DRAFT): 02-23-10

(1) The Company must review its contract arrangements with any affiliate that is also a cooperative or trade association or any affiliate that, in turn, has a contractual arrangement with a cooperative or trade association to determine whether the cooperative or trade association seeks to qualify for payments to producers under section 508(b)(5)(B) of the Act (7 U.S.C. § 1508 (b)(5)(b)). ( If a cooperative or trade association seeks to qualify under section 508(b)(5)(B) after the date the Plan is submitted to FCIC, the Company must submit the items listed below and receive written FCIC approval before the cooperative or trade association will be deemed to qualify under section 508(b)(5)(B): Deleted: .) Deleted: The Company must provide: (A) The names, addresses, and telephone numbers of each cooperative association or trade association with which the Company or its affiliates intends to enter into a licensing or other financial agreement or contract authorized by sections 508(b)(5)(B), or has Deleted: of the Act, entered into such agreements;

(B) A copy of the agreement or contract with the cooperative association or trade association and a list of the states where the cooperative association or trade association will return all or part of the CAT administrative fee received from the Company to its producers; and

(C) For each State listed in subparagraph (B), a letter from the State Insurance Department stating whether the payment of all or a portion of the CAT administrative fees on behalf of producers is in compliance with the rebating laws of such State.

(2) For those cooperative or trade associations previously determined by FCIC to have qualified under section 509(a)(9)(B)(iii), the Company must Deleted: of the Act, provide a current certification from an officer of the cooperative or trade association that it will make any payments to its producers during the reinsurance year under the same terms and conditions under which it received original approval from FCIC.

(l) E-Business Implementation Plan: The Company must include the following Deleted: [formerly 28] information to demonstrate compliance with the Freedom to E-File Act.

(1) The process the Company will use to provide and receive electronically all required forms and other information concerning the Federal crop insurance program. The Company must provide a description of:

(A) The process the Company will use to allow producers to file electronically all paperwork required for participation in the program.

(B) The type of electronic signature that will be used by producers. 7 DB04/763432.0030/2554194.1 WP08 RED-LINED VERSION OF 2011 SRA—Appendix II (SECOND DRAFT): 02-23-10

(C) The name, address and e-mail address for one contact person with the vendor being used to provide electronic signatures.

(D) The security measures the Company will use to protect the confidential nature of the data and information submitted by producers from being reviewed, revised or otherwise used by unauthorized persons. A third-party certification of security measures must be obtained from a recognized security certification firm and must be provided.

(E) The process the Company will use to document revisions to data and information submitted by producers.

(F) The storage, backup, and retention procedures being used by the Company for electronically filed documents. Provide the name, address, and phone number for one contact person for the Company who manages the storage and backup procedures for the Company.

(2) The names, URL's, facsimile numbers, and mailing addresses of each location where producers may electronically access and file the paperwork required for participation in the program.

(3) Describe the directions being provided with respect to how to access the information and forms, properly complete and submit them, meet filing Deleted: ; deadlines, obtain user ID and password, etc. Deleted: ing Deleted: ; (4) The online responsibilities of the crop insurance agent to each producer who files or retrieves required paperwork electronically with the Deleted: ing Company.

(5) The process for obtaining consent from the producer to electronically conduct crop insurance business on a partial or complete basis with the Company.

(6) Provide the procedures a producer must use to withdraw consent to electronically conduct crop insurance business on a partial or complete basis with the Company.

(7) Provide the procedures that a producer must use to request a paper copy of an electronic record.

(8) The statement of the required hardware and software needed by a producer to access, obtain, and retain electronic documents from the Company.

(m) A general description of the Company’s Information Technology architecture and Deleted: [new] operating environment (e.g., hardware and software). Indicate whether these Deleted: to determine operating capacity and compatibility with RMA systems, including 8 DB04/763432.0030/2554194.1 WP08 RED-LINED VERSION OF 2011 SRA—Appendix II (SECOND DRAFT): 02-23-10

systems are managed in-house or through service providers, and the names of any Deleted: contracted vendors such service providers. The description should, at a minimum, include the types Deleted: contracted vendors involved in the and major version numbers of operating systems and databases; major maintenance of Company operating systems programming languages and software products; and the name and major version that interact with RMA systems. number, if applicable, of any company’s developed system that interacts with Deleted: version number and/or RMA systems, including a general description of the network architecture and Deleted: the security capabilities of such systems. and industry standards or methodologies Deleted: ; used for data exchange and software development. Deleted: ;

(n) [revised version of former item 7] A complete description of the process the Company will use to retain all official records relative to eligible crop insurance contracts reinsured under this Agreement (e.g., applications, acreage reports, Deleted: i.e summaries of coverage, claims of loss, etc.). Include the office addresses and Deleted: .), telephone numbers of the locations where such records are retained, and if original insurance documents are retained by sales agencies or sales agents, the Company must report those official records’ location(s) in accordance with Appendix III. Include a certification that the Company has in place the security measures to Deleted: taken ensure the confidentiality, integrity, and availability of the records in a manner Deleted: compliance consistant with FISMA. If records are kept electronically, include the Company’s Deleted: processes and procedures, principal and backup server locations for the electronic storage and retrieval of such records. Deleted: (Note, if original insurance documents are retained by sales agencies or sales agents, the Company must also report this (o) If requested by FCIC, any information related to the Company or MGA that in accordance with Appendix III.) would assist FCIC in determining the operational capacity to perform under the Formatted: Font: Italic terms of this Agreement. Formatted: Font: Italic V. FCIC Reinsurance Business Plan Deleted: [new] If the Company is requesting to provide profit sharing compensation to an affiliate in excess of the A&O subsidy The Plan shall include: compensation limitation specified in section III.(a)(2)(D):¶ <#>A listing of all affiliates to receive such (a) The maximum reinsurable net book premium volume for which the Company profit sharing compensation;¶ requests reinsurance. (This may be more than the total provided in Exhibit (V)(b)). <#>The reinsurance year(s) the profit was earned by the Company and the amount of profit for each reinsurance year; and¶ (b) A designation as to the States in which the Company wants to be authorized to sell <#>The amounts or percentages of profit and service eligible crop insurance contracts and estimates of the net book sharing compensation to be paid to each affiliate.¶ premium assigned to each fund within each designated State as specified in the [new] Estimated Premium Template. The State in which the Company is officially Formatted: Font: Italic domiciled must be designated. Formatted: Indent: Left: 0.5", Line spacing: single, No bullets or numbering (c) A declaration of the percent of the net book premiums and associated liability for Deleted: [formerly11] ultimate net losses the Company will retain in the Commercial Fund for each State designated in accordance with section E.2, as specified in the Commercial Fund Formatted: Line spacing: single Template. Deleted: [formerly 12] Deleted: [formerly 14] (1) Selling and servicing eligible crop insurance contracts in a State for which no declaration has been made under this subsection will result in the

9 DB04/763432.0030/2554194.1 WP08 RED-LINED VERSION OF 2011 SRA—Appendix II (SECOND DRAFT): 02-23-10

retention of 100 percent net book premium and associated liability for ultimate net losses for that State.

(2) In the case of the Company acquiring another AIP, or the Company merging with another AIP, and the declarations made under subsection E.3. are different between the Company and AIP, in its sole discretion, FCIC will determine the percent of the combined net book premiums and associated liability for ultimate net losses the Company will retain in each State in order to ensure that losses are not shifted to FCIC.

(d) The Company’s intention to reinsure a portion of its net liability (after FCIC Deleted: [formerly 19] reinsurance) in accordance with section II(b)(12) of the Agreement. The Company must submit, within 10 days of execution of reinsurance documentation, a copy of the reinsurance documentation (agreements or cover notes) related to eligible crop insurance contracts reinsured under this Agreement. The reinsurance documentation must be executed by all parties and include:

(1) The percent subscribed by each reinsurer to each arrangement, treaty, or binder, and the names of each reinsurer, intermediary, or broker; and

(2) A description of the type of reinsurance, retentions, attachment points and limits, aggregate limits, minimum deposit, premium rates, and all other applicable terms.

VI. Risk Assessment and Contingency Plan Deleted: [formerly 10.r and 20]

The risk assessment shall consist of, at a minimum, the following:

(a) A copy of the latest maximum probable loss risk assessment, whether prepared by or on behalf of the Company. The assessment must detail the magnitude and frequencies of the risks assessed and include a description of the methodology used.

(b) For each of the risks listed in subsection (c):

(1) An estimate of the probability of occurrence;

(2) A rationale for the estimate;

(3) An assessment of the impact on the Company; and

(4) A contingency plan for how the Company will be able to meet the obligations under the Agreement should the event described by such risk occur. The plan must describe:

10 DB04/763432.0030/2554194.1 WP08 RED-LINED VERSION OF 2011 SRA—Appendix II (SECOND DRAFT): 02-23-10

(A) How the Company will ensure that sufficient resources will be available to continue operations and service eligible crop insurance contracts for current and any previous reinsurance years, as applicable;

(B) How the Company would meet its obligations for continuity of indemnity payments to producers, to accurately calculate premium and indemnities, to bill premium timely, and to prevent data corruption;

(C) If the Company uses an MGA, identify how the Company will obtain or retain sufficient financial and operational capacity to manage a delivery system through resources other than those currently provided by the MGA;

(D) How the Company will ensure that sufficient cash resources will be retained to continue servicing operations and meet all requirements of the Agreement;

(E) How the Company will ensure that it retains sufficient expertise in crop insurance sales, underwriting, loss adjustment, quality control, data processing, and all other facets of crop insurance sales and service to continue operations until all requirements of the Agreement have been met; and

(F) The physical security of current and backup systems; how backup systems will be deployed in the event they are needed; an estimate as to how long before normal operations may be expected to resume in the event the backup system is needed as the primary operational system; and how personally identifiable information will be protected in a transition from primary to backup systems.

(c) Risks:

(1) Crop insurance expenses exceed the A&O subsidy provided by FCIC.

(2) Underwriting gains are insufficient to offset any expense deficit identified in paragraph (1).

(3) Policyholder surplus decreases more than ten percent in any calendar year.

(4) A significant interruption occurs in computer hardware or software that affects operations or data transfer capabilities (such as due to a computer virus, security breach, communications failure, etc.).

(5) A rating agency determines the Company’s ability to meet its current obligations is marginal and that its financial condition is vulnerable.

11 DB04/763432.0030/2554194.1 WP08 RED-LINED VERSION OF 2011 SRA—Appendix II (SECOND DRAFT): 02-23-10

(6) Lines of credit or other financial arrangements become unavailable or is inadequate to meet cash flow needs.

(7) Commercial reinsurance becomes unavailable or its cost rises (or ceding commissions received decline) significantly. Deleted: s

(8) If the Company uses an MGA or service providers, the MGA or service provider:

(A) Is no longer able to perform the requirements of its agreement with the Company;

(B) No longer has the financial or operational capacity to enable the Deleted: Is no Company to comply with the requirements of the Agreement; or

(C) Becomes ineligible to participate in the Federal crop insurance program.

12 DB04/763432.0030/2554194.1 WP08 RED-LINED VERSION OF 2011 SRA—Appendix II (SECOND DRAFT): 02-23-10

(9) Any other material threat or risk that the Company may be aware of or have prior knowledge of that should be considered in the selling and servicing of eligible crop insurance contracts reinsured under the Agreement.

13 DB04/763432.0030/2554194.1 WP08

CLEAN VERSION OF 2011 SRA APPENDIX III

Note: NCIS’ response to the 1st draft of A-III included suggested editorial changes to make A-III more consistent with the remainder of the SRA. Those editorial revisions included the use of terms “the Company” instead of “AIP” and “eligible crop insurance contract” instead of “policy”. NCIS also made numerous corrections to the Table of Contents that are not entirely consistent with that draft. To allow for easier consideration of the more substantive recommendations contained herein, these editorial revisions are not included in this 2nd draft A-III response. However, NCIS believes the standardization of these terms and editorial revisions should be made in any final draft of this Appendix.

Also, because of pending design and operational decisions under the Information Technology Modernization (ITM) project that will impact the content of this Appendix for the 2011 reinsurance year, the attached comments are not inclusive of any design and operational decisions currently pending, including, but not necessarily limited to:

 all ITM input and output record formats, including ADM and “ICE” file formats, as potential revisions are ongoing;  all ITM processes which will use “legacy” systems for 2011 and their replacement ITM components for the 2012 reinsurance year;  written agreement validations for the 2011 reinsurance year, and the subsequent replacement with an RO Exceptions reporting and validation process for the 2012 reinsurance year;  any “white paper” that is pending publication, as well as any “white paper” that is currently published for industry comment;  any “ITM Issues Log” entry that is pending a decision by RMA and any subsequent Industry response to RMA’s recommended resolution of that issue;  creation of a “Type 26” record as referenced in various ITM publications;  any revision of the information contained herein arising from the publication of the Common Basic and Crop Insurance Policy provisions for the 2011 reinsurance year; and  any issue that would arise from the design and operational decisions made in response to any of the above items coming to resolution.

In addition, it is noted that all Exhibits highlighted by RMA herein were not provided with this draft issuance, and these comments are not inclusive of those omitted exhibits. Furthermore, some exhibits contained herein are subject to ITM design decisions referenced above, and these comments are not inclusive of those exhibits.

AIPs reserve the right, in the spirit of good faith negotiations as indicated on Page 2, to address ITM design decisions that could substantively impact the ultimate data reporting requirements that will be included in this Appendix throughout the period of negotiations of the 2011 SRA.

United States Department of Agriculture

Federal Crop Insurance Corporation RISK MANAGEMENT

AGENCY Appendix III to the Standard Reinsurance

Agreement and the Livestock

Price Reinsurance Agreement Risk Management Agency

2011 REINSURANCE YEAR

Product Analysis and Accounting Division

APPENDIX III

RISK MANAGEMENT AGENCY

KANSAS CITY, MO

TITLE: RISK MANAGEMENT AGENCY NUMBER: APPENDIX III TO THE POLICY ACCEPTANCE AND STORAGE STANDARD REINSURANCE AGREEMENT SYSTEM EFFECTIVE DATE: July 1, 2010 ISSUE DATE: July 1, 2010 SUBJECT: OPI: Product Analysis and Accounting Division

Provides the standards, instructions and APPROVED: June 30, 2010 information for reporting Approved Insurance Provider (AIP) data to the Risk Management Agency/Federal Crop Insurance Corporation Deputy Administrator, Product Management

Reason for Issuance

This Appendix is being issued to provide standards, instructions and information for electronic data reporting of policyholder, commodity and other information submitted by AIPs as required by the Standard Reinsurance Agreement, Livestock Price Reinsurance Agreement or other Risk Management Agency (RMA) policy and procedures.

Agreement to Negotiate In Good Faith

RMA and AIPs recognize that joint efforts for ongoing design and development of RMA’s Information Technology Modernization (ITM) project is underway, and that design decisions arising over the life of the ITM project could impact reporting requirements contained herein. RMA and AIPs recognize that some ITM design decisions will not be concluded by the July 1, 2010 start of the 2011 reinsurance year. RMA and AIPs will continue to make mutually agreeable ITM design decisions in the spirit of renegotiating the above reinsurance agreements for the 2011 reinsurance year, as well as to adhere to the Common Basic, Crop and Special Insurance Provisions, endorsements and related procedures that will be in effect for the 2011 reinsurance year.

RMA and AIPs further agree that potential RO Exceptions automation contemplated within the ITM project scope will be designed to achieve mutually beneficial cost efficiencies and implementation of any automated component of the various RO Exception reporting requirements will be staged over multiple reinsurance years, with those automated processes which provide the greatest mutual benefit being automated first. RMA and AIPs recognize that some facets of any current RO Exceptions reporting requirement may be automated while other facets which have no material benefit in being automated could continue to be handled under the reporting requirements in effect for that reinsurance year. RMA and AIPs agree that any new automated RO Exceptions reporting requirement will be included in the Appendix III in effect for the reinsurance year that the automated process is to be implemented.

TABLE OF CONTENTS Page No.

Note: Please see NCIS’ response to the 1st Draft of A-III for recommended TOC changes.

Part 1 General Information and Responsibilities

1 General Information ...... 1

2 Responsibilities ...... 3

3 System Overview..………………………………………………………………………………4

4-10 (Reserved)

Part 2 Organizational and Formatting Standards

11 PASS Submission Requirements ...... 7

12 Telecommunications ...... 20

13 Processing Considerations ...... 22

14 PASS Reports ………………………………………………………………………………..40

15-20 (Reserved)

Part 3 Accounting

21 Accounting Processing Considerations...... 42

22 Accounting Reports ...... 47

23 Escrow Reconciliation… ……………………………………………………………………..52

24 Application of Paids and Loss Credits…………………………………………………………55

25 Full Book Reconciliation……………………………………………………………………….56

26-30 (Reserved)

Exhibits

1 FCIC Operations Report Monthly Operations Report FCIC Installment Report Annual Settlement Operations Report FCIC Fee Report FCIC Accounting Detail Report (Excluding CAT)

2nd Draft February 23, 2010 RMA-Appendix III TC1

P/CR Memo Reject Report Interest Calculation Examples 2 Detail Accounting and Administrative Fee Reports CAT Coverage Fees Reports……………………………………………….……..……3-1 Additional Coverage Administrative Fee Summary Report……….……………...... 3-4 3 Reinsurance Run Reports FCIC Reinsurance Run………………………..………… 4-1 4 Reconciliation Reports Monthly Reconciliation Reduction Worksheet………………………..…………….. 5-1 Annual Reconciliation Reduction Worksheet……………………………..……...... 5-2 Discrepancies of Premium by Policy……………………………………………..… 5-3 Discrepancies of Losses by Policy…………………………………………………... 5-4 Discrepancies of Paids by Policy…………………………………………….………...5-5 Discrepancies of Loss-Credits by Policy………………………………………………5-6 5 FCIC Administrative Reduction Reports Administrative Reduction Report – Late Filed Sales………………………………… 6-1 6 Premium Due Worksheets Premium Due Without Payments Worksheet………………………………………… 7-1 Premium Due Worksheet……………………………….…………………………..…7-3 7 Instruction Guide for Funds Transfer, Deposit, Message to Treasury……………………… 8-1 8 Escrow Register……………………………………………………………….……………… 9-1 9 RAS Summary Reports – Adjustments for Livestock FCIC Livestock Detail Report……………………….…………………..…………...10-1 Monthly Livestock Operations Report…………………………………………….…10-2 Livestock Settlement Report……………………………..………………………..... 10-3 10 Crop Year 2010 Pilot Crops……...... ………………………………………….... 11-1

PASS Record Descriptors (Note PASS Record Descriptors are available on the ITM extranet site and can be accessed by AIP ITM team members as needed.) They will not be recreated for purposes of this handbook based on the ITM PASS release schedule.

05 CIMS Request Record – Type 5………………………………………………………...... … 5-0 CIMS Status Codes Exhibit………………………………………………………….……... 5-1 09 Fund Designation Record – Type 9…………………………..……………………………... 9-0 Fund Designation Guidelines Exhibit……………………………………………….…….... 9-1 10 Policy Record – Type 10………………………………………….……………………..….. 10-0 Entity and ID Type Table………………………………..……………………………….…. 10-1 11 Acreage Record – Type 11…………………………………………………………….…... 11-0 Guarantee Reduction Percents………………………………………………..………..….. 11-1 Malting Barley PASS Edit Requirements………………………………………….…..…….11-1 DAS `ZERO Acreage Reporting Requirements……………………………..………..…... 11-1 First Crop Processing (Planted Acreage)…………………………………………….…..….. 11-1 2010 Rate Class………………………………………………………………………..……. 11-2 2010 Map Area…………………………………………………………………………..….. 11-3 Dollar Amount of Insurance……………………………………………………………..….. 11-4 Guaranteed Reduction Factors for Cherries……………………………………….……..…..11-5 Sheller Warehouse Codes For Peanuts…………………………..……………………....….. 11-5 Insurance Plan Codes…………………………………………………………………….…. 11-6 Crops Eligible for BU……………………………………………………………….….…… 11-7 Written Agreement Edits and PASS Validations………………………………….………... 11-8

2nd Draft February 23, 2010 RMA-Appendix III TC2

2010 Filing Year Option Codes……………….…………………………………….………. 11-9 Crops Requiring Zeros for Date Planted………..………………………………………....…11-10 Type: 11 Calculations………………..……………………………………………………….11-11 Yield Requirements / Edit……………………………………………………….……....…..11-12 Unit Premium Adjustment Factor and Producer Premium Percentage Table….……………11-13 Codes for FCIC Approved Supplemental and Reinsured Policies……………………….….11-14 12 Payment Record – Type 12………………….………....…………………………….………12-0 13 Inventory Value Record – Type 13…………………..…...... ……..…….…… 13-0 14 Insurance in Force Record – Type 14…….………………………………………………..…14-0 Crops Which Allow Multiple Type 14….……………………………………..…….…….…14-1 Reserved…………………………………………………………………………..…...... 14-2 Duplicate Edits………………………………………………………………..……...... 14-3 Reserved………………………………………………………………………..…...... 14-4 Crops Where CAT Coverage Is Not Available………………………………………..... 14-5 15 Yield Record – Type 15…………………………………………………………..…… .. 15-0 Yield Type Edits…………………………………………………………………..…... .. 15-1 Yield Limitations Edits……………………………………………………………….……. 15-2 Maximum Yield Allowed……………………………………………………………..….… 15-3 Crop Requiring A Type 15 (Yield) Record…………………………………………….….. 15-4 Indexed Income Protection Yields…………………………………………………………..15-5 APH Crops That No Longer Have Capped Yields………………………………………... 15-6 16 Reserved………………………………………………...... 16-0 17 Land Identifier Record – Type 17…………….…………………………………………..… 17-0 Crop /Plan Codes Not Requiring A 17 Record…………………………………………….. 17-1 Legal Land ID Validation………………………………………………………………….. 17-2 Latitude/Longitude……………………………………………………………………….… 17-3 18 – 19 Reserved………………………………………………………………………… 18-0 Thru 19-0 20 Loss Total Record – Type 20………………………………………………………………. 20-0 Record 20 Exhibit………………………………………………………………………….. 20-1 21 Loss Line Record – Type 21……………………………………………………………….. 21-0 First Crop Processing (Planted Acreage)…………………………………………………... 21-1 Cause of Loss Codes by Code………………………………………………...…………... 21-2 Cause of Loss Codes……………………………………………………………………….. 21-3 Stage Code Definitions………………………………………………………………..…… 21-4 Stage Code by Crop………………………………………………………………… ……. 21-5 Simplified Claims Processing…………...……………………………………………….... 21-6 Self- Certified Replant Claims……………..…………………………………………..…….21-6 Prevented Plating Guarantee Percentage Table………………………………………..…… 21-6 Replant Maximum / Minimum Table…...………………………………………………..... 21-7 Stage Percent, Price Percent and Price Election Factors………………………………....… 21-8 Reserved…………………………………..……………………………………………....….21-9 Type 21: Calculations….…………………………………………………………..………...21-10 22 Inventory Loss Record - Type 22………..…………………………………………….….… 22-0 Type 22: Nursery Calculations …………..……………………………………………….… 22-0 Type 22: Cultivated Claims Calculations………………………………………….………. 22-1 Nursery Optional Unit Plant Type Code…...……………………………………………….. 22-2 Cause of Loss Codes by Crop………………………………………………………………..22 - 3 23–24 Reserved……………………………………………………………………………23-0 Thru 24-0 25 Settlement / Arbitration Record – Type 25……………………………………………...... 25-0

2nd Draft February 23, 2010 RMA-Appendix III TC3

26 Reserved………………………………………………………………………………...... 26-0 28-47 Reserved………………………………………………………………………… . 28-0 Thru 48-0 49 Delete Records – Type 49……………………………………………………………… ...... 49-0 51 Conflict of Interest Policy Reporting Record…………………………………………...... 51-0 54 Agency / Company Employee Data Record…………………………………………… ...... 54-0 55 Agent Data – Type 55…………………………………………………………………...... 55-0 56 Loss Adjuster Data – Type 56…………………………………………………………...... 56-0 57 Quality Control Reporting Record – Type 57…………………………………………...... 57-0 58 Notice of Loss Record…………………………………………………………………...... 58-0 59 Reserved………………………………………………………………………………… ...... 59-0 60 Ineligible Producer Input Record – Type 60……………………………………………...... 60-0 Ineligible Transaction Flag Values……………………………………………………… ..... 60-1 60e Ineligible Producer Error Record – Type 60e……………………………………….…...... 60e-0 Ineligible Tracking System Error Codes………………………………………………...... 60e-1 61 Ineligible Producer Output Record – Type 61…………………………………………...... 61-0 Ineligible Status Flag Values…………………………………………………………… ...... 61-1 62–64 Reserved……………………………………………………………………… .... 62–0 Thru 64-0 65 CAT Fee Receivable Record……………………………………………………………...... 65-0 66-69 Reserved……………………………………………………………………… .... 66–0 Thru 69-0 70 Reverse 70 Detail Record – Type 70…………………………………………………… ...... 70-0 71 Reverse 71 Trailer Record – Type 71…………………………………………………...... 71-0 72-80 Reserved………………………………………………………………………… . 72-0 Thru 80-0 81 Policy Holder Tracking Experience Inquiry – Type 81 Output Format………………… .... 81- 0 82-96 Reserved…………………………………………………………………………..82-0 Thru 96-0 97 2010 Flow Chart………………………………………………………………………… ..... 97-0 98 Output Error Format for `.err……………………………………………………………...... 98-0 98-1 Rec 9 Output Format for `.acp, .fun, .rej, .sus’………………………………………… ..... 98-1 98-2 Rec 10 Output Format for `.acp, .esc, .exp, .ex5, .rej, .sus’…………………………...... 98-2 98-3 Rec 11 Output Format for ` .acp, .rej, .sus……………………………………………… ..... 98-3 98-4 Rec 12 Output Format for `.acp, .rej, .per, .sus………………………………………...... 98-4 98-5 Rec 13 Output Format for `.acp, .rej. .sus’……………………………………………...... 98-5 98-6 Rec 14 Output Format for `.acp, .exp, .ex5, .rej, .sus…………………………………...... 98-6 98-7 Rec 15 Output Format for `.acp, .rej, .sus……………………………………………...... 98-7 98-9 Rec 20 Output Format for `.acp, .esc, .rej, .sus………………………………………...... 98-9 98-10 Rec 21 Output Format for `.acp, .esc .rej, .sus………………………………………. .... 98-10 98-11 Rec 22 Output Format for `.acp, rej, .sus’…………………………………………….. ... 98-11 98-12 Rec 25 Output Format for `.acp. .rej, .sus……………………………………………...... 98-12 98-13 Rec 27 Output Format for `.acp, .rej, .sus……………………………………………...... 98-13 98-14 Rec 49 Output Format for `.acp, .rej, .sus……………………………………………...... 98-14 98-15 Rec 57 Output Format for `.acp, .rej, .sus……………………………………………...... 98-15 98-16 Rec 58 Output Format for `.acp, rej, .sus……………………………………………...... 98-16 99a FCIC Crops (by Crop Code /Alphabetical)……………………………………………...... 99a-0 99b Rounding Rules…………………………………………………………………………. .... 99b-0 99c Removed from Appendix III – Information available in Crop Ins. Handbook………… .... 99c-0 99d Field Definitions………………………………………………………………………...... 99d-0 99e FIPS State Code………………………………………………………………………...... 99e-0 99f Insurance Plan Codes…………………………………………………………………...... 99f-0

100 – 109 Reserve

2nd Draft February 23, 2010 RMA-Appendix III TC4

eDAS Exhibits 111 Adjuster…………………………………………………………………………. .... 111-0 112 Agent……………………………………………………………………………. .... 112-0 113 Employee………………………………………………………………………...... 113-0 116 Reviewer………………………………………………………………………… ... 114-0 118 Conflict………………………………………………………………………….. ... 115-0 119 Livestock Crop Policy……………………………………………………………... 119-0 121 Entity…………………………………………………………………………….. ... 121-0 Entity /SBI ID Type Table……………………………………………………….. .. 121-1 122 Policy…………………………………………………………………………….. .. 122-0 123 AGR/AGR-L Crop Policy………………………………………………………..... 123-0 Coverage Level Eligibility……………………………………………………….. .. 123-1 124 Payment…………………………………………………………………………..... 124-0 126 SBI……………………………………………………………………………….. .. 126-0 130 Livestock Fund…………………………………………………………………...... 130-0 131 AGR/AGR-L ……………………………………………………………………. ... 131-0 135 LRP Premium…………………………………………………………………….... 135-0 LRP Premium Calculations………………………………………………………... 135-1 LRP Indemnity…………………………………………………………………… .. 135-2 LRP Indemnity Calculations……………………………………………………… . 135-3 140 LGM Premium……………………………………………………………………. . 140-0 LGM Premium Calculations……………………………………………………… . 140-1 LGM Indemnity………………………………………………………………….. .. 140-2 LGM Indemnity Calculations…………………………………………………….. . 140-3 150 Disbursement (of Loss Payment)…………………………………………………. . 150-0 151 AGR/AGR-L Farm Report / Premium……………………………………………. . 151-0 AGR/AGR- L Liability/Premium Calculations…………………………………… 151-1 AGR/AGR-L Indemnity ………………………………………………………….. 151-2 AGR/AGR-L Indemnity Calculations………………………………... . ………….151-3 160 Weekly Transaction Cut-off Dates………………………………………………....160-0 161 Fund Cutoff and LRR Dates………………………………………………...…..…161-0 162 Acronyms……………………………………………………………………….….162-0

2nd Draft February 23, 2010 RMA-Appendix III TC5

Part 1 General Information and Responsibilities

1 General Information

A. Purpose and Objective

This Appendix provides standards, procedure and instructions for reporting AIP data to RMA/FCIC. The objectives include, but are not limited to:

 providing a means of validating data to provide reasonable assurance that reimbursements are made based on accurate and timely information.

 maintaining detailed contract information at RMA

 enhancing the quality and availability of data at all levels

B. Source of Authority

Federal programs enacted by Congress and the regulations and policies developed by RMA, USDA and other Federal agencies with applicable regulatory control provide the:

 Authority for program and administrative operations

 Origin for RMA calculation of A&O subsidy, reinsurance and risk sharing.

Authority for managing the Policy Acceptance and Storage System, eDAS and automated RO Exceptions is authorized by:

 Standard Reinsurance Agreement (SRA) and supporting Appendices

 Livestock Price Reinsurance Agreement (LPRA)

 RMA issued procedures

 Regulations promulgated under the:

 Federal Crop Insurance Act

 System of Records Notice

 Basic provisions and endorsements

 Debt Collection and Improvement Act

2nd Draft February 23, 2010 RMA-Appendix III 1

1 General Information (Continued)

C. Related Handbooks and Reference Materials

This table references related handbooks/reference materials and their relation/purpose.

Related Handbooks/ Relation/Purpose Reference Material Provides cession limits, maximum premium volume, states in which the company is authorized to write business, and other Appendix II to the SRA selected criteria required by the SRA . Appendix IV to the SRA Provides requirements for monitoring the quality control program Crop Insurance Handbook Provides procedures for reporting information from producers Document and Provides standard forms and procedures for collecting information Supplemental from producers Standards Handbook Loss Adjustment Standards Handbook Provides collection and reporting procedures for claim information Written Agreement Provides procedures for modifying terms and conditions of the ADM Handbook or other issued policy and procedure Provides procedures for identification and tracking of ineligible Ineligible Handbook producers Underwriting Guides All underwriting guides published on RMA’s website (www.rma.usda.gov) Other Program Handbooks All other program handbooks and standards published on RMA’s and Standards website (www.rma.usda.gov) 4-RM Provides procedures and guidance to FSA State and County Offices, RMA, and Approved Insurance Providers for improving Federal Crop Insurance Program compliance and integrity as required by the Agricultural Risk Protection Act of 2000 (ARPA) Bulletins Applicable bulletins and informational memorandum published on RMA’s website (www.rma.usda.gov)

Any conflict between the above documents will be resolved by the Hierarchy of Controlling Documents in Exhibit 11.

D. Issuances and Revisions

1. This appendix will be issued annually reflecting detailed reporting requirements for eligible crop insurance contracts and other supporting information applicable to each Reinsurance Year in accordance with the SRA/LPRA and Appendices. A DRAFT will be issued by February 7th preceding the reinsurance year for comment, including general PASS requirements, proposed or major processing enhancements, known policy and procedural changes, fund designation requirements and LRR determination process. AIPs will have 21 days to comment to the draft. The approved Appendix III will be issued by March 15, preceding the reinsurance year, and will be approved quarterly, as needed. a. Appendix III will not contain any reserved, optional, no edit or other “placeholder” fields.

2nd Draft February 23, 2010 RMA-Appendix III 2

b. RMA must explain to AIPs their reason for rejecting AIP comments to any proposed changes or subsequent new reporting requirement (similar to the proposed rule comment process).

c. Any revision to this appendix must be made in accordance with Section IV (b)(1) of the SRA/LPRA.

2. Revisions to this appendix and to PASS may become necessary after the annual release to ensure that data reported complies with the SRA, actuarial requirements, Federal regulations, crop policy provisions, and procedural changes that could not be anticipated when the annual update was released. Revisions to Appendix III will include:

a. Clarifications that do not change the format or values of the reporting requirements.

b. New reporting requirements to meet the terms and conditions of the Act, FCIC regulations, and/or procedures enacted after the initial release of Appendix III, made under the terms of the SRA/LPRA.

c. Corrections to the reporting requirements to meet the existing terms and conditions of the Act, FCIC regulations, and/or procedures.

3. Any new or proposed requirements revisions will be available for comment for a period of 14 calendar days. FCIC generally will work with the AIPs in an attempt to reach consensus in determining the most efficient means of implementing revisions both prior to and subsequent to the initial release. Revisions after the initial release will be highlighted and a summary by date will be maintained. Explanation will be provided stating the reason a particular change was initiated or implemented.

a. Changes will be implemented after the accounting cut-off date following the 14 day comment period, except in situations involving material monetary impact.

4. The SRA, except as provided therein, Act, regulations in 7 C.F.R. Chapter IV, regulations and procedures listed in Section 1 B and C of this Appendix, and the applicable eligible crop insurance contract and procedures take precedence over Appendix III for servicing requirements. Any conflict between these documents will be resolved by the Hierarchy of Controlling Documents in Exhibit 11.

5. The appendix is maintained electronically via the RMA Home Page. The RMA Website address is:

http://www.rma.usda.gov/data

Click on APPENDIX III, Data Reporting Requirements.

6. Provisions for approved and draft versions of the Appendix III for multiple reinsurance years are available.

2nd Draft February 23, 2010 RMA-Appendix III 3

a. The approved version contains the current Appendix III that has been approved by FCIC.

b. The draft version contains proposed changes for review and comment.

A. Draft versions will be watermarked DRAFT and changes will be highlighted when possible.

B. AIPs will be notified of changes to the DRAFT version on the PASS Status Report and/or on the “Read me” page.

D. Implementing FISMA Information Security Standards and Guidelines

1. As required by SRA Section IV (a) (4), the company is to develop, implement and maintain information controls and systems in a manner that is consistent with the Federal Information Systems Management Act (FISMA). The company may utilize existing information technology, audits and security approaches currently determined by and required of the company to demonstrate that Protected Information and records are being secured and protected from non- disclosure. But the company must engage a process designed to achieve the minimum security requirements for moderate-impact security objectives for each of their systems that contain protected information or interact with a federal information system.

2 FIPS 200, Minimum Security Requirements for Federal Information and Information Systems, lists the mandatory federal standards developed by NIST in response to FISMA. To comply with the federal standard, the company must derive the information system impact level for a moderate-impact security category in accordance with FIPS 200, and then apply the appropriately tailored set of baseline security controls in NIST Special Publication 800-53, Security Controls for Federal Information Systems and Organizations. The Company has flexibility in applying the baseline security controls in accordance with the guidance provided in Special Publication 800- 53. This allows the company to tailor the relevant security control baseline so that it more closely aligns with their mission and business requirements and environments of operation.

3 FIPS 200 and NIST Special Publication 800-53, in combination, help ensure that appropriate security requirements and security controls are applied to all company systems that contain protected information or interact with federal information systems. An organizational assessment of risk validates the initial security control selection and determines if any additional controls are needed to protect organizational operations (including mission, functions, image, or reputation), organizational assets, individuals, other organizations, or the Federal Crop Insurance program. The resulting set of security controls establishes a level of security due diligence for the Company.

4 The company may utilize existing audits, assessments and security standards required of the company to achieve equivalent security results as required in FIPS 200 and Special Publication 800-53.

E. General Provisions

1. FCIC will provide a policy detail statistics file by March following the reinsurance year. RMA will subsequently “refresh” those files in March each calendar year that the Reinsurance Year’s 2nd Draft February 23, 2010 RMA-Appendix III 4

automated processing was active. Historical policy data statistics files for reinsurance years prior to the 2011 reinsurance year will be provided by no later than March following the 2012 reinsurance year.

2. FCIC will provide the AIP any necessary “web services” or backend data and GIS files that are required to sell and service regulatory, pilot and 508(h) policies or the policy’s implementation will be delayed until such time as this information can be provided to the AIP.

3. FCIC will grant the AIP access to RMA’s data mining “Dashboard” products by no later than March following the 2011 reinsurance year.

4. FCIC determinations under the SRA or the eligible crop insurance contract (i.e. excessive yield determinations, Good Farming Practices, max yields, etc.) will be made within 90 days of the AIP’s request, or the AIP’s request shall be considered approved.

5. FCIC will not develop any type of premium quoting application, web site or web service that is the responsibility of the AIP under the SRA/LPRA. Any premium cost estimator application web site or web service developed by FCIC will be limited to the actuarial offerings and policy coverages, and at no time will be based on a producer’s farming operation, specific unit choices, actual acreage or written agreement terms.

6. As it is the responsibility of the AIP to develop sales and policy servicing systems under the SRA/LPRA and delivery of the Federal Crop Insurance Program is provided solely through AIPs under the Federal Agriculture Improvement and Reform Act of 1996, the eDAS Graphical User Interface (GUI) website will be shut off effective with the 2012 reinsurance year. RMA will continue to provide and maintain the web services that support eDAS, and it shall be the AIP’s responsibility to submit AGR and LPRA data through the eDAS web services thereafter.

7. The AIP will conduct data reconciliation, as required under the Agricultural Risk Protection Act (ARPA), as specified in Appendix IV, and report any necessary result of that reconciliation as specified herein.

2 Responsibilities

The following table references the Entity, Function and Responsibilities related to submitting and processing data through PASS.

Entity Function Responsibilities RMA Waivers & Responsible for ensuring the AIP has met all their responsibilities, and approval Revisions or disapproval when requesting waiver of:

 fund designation lockdown dates/modifications to fund designations  A&O subsidy reductions for LRR   revision to MAX Yields RMA Reporting Responsible for:

2nd Draft February 23, 2010 RMA-Appendix III 5

 providing updates to FCIC reporting guidelines  performing duties and validations of AIP submitted data as outlined in the “Formats/Edits” portion of this Handbook  determining data reporting requirements, validation edits, files and standards  maintaining and administering databases and other storage media used by PASS  maintaining and timely releasing to AIPs the Insurance Control Elements (ICE) validation files reference herein  preparing and providing error reports to the AIP designee containing data not passing all edits and validations specified by FCIC  updating/maintaining reinsurance data in the policy and accounting databases  providing technical assistance in error resolution  responding within 7 business days to a properly completed PASS error report  generating reconciliation reports/data  generating accounting reports/data  generating revised monthly operations reports after current worksheets are updated by the AIP RMA Reimbursement Responsible for reimbursement of the following in accordance with Part 3 of this Appendix:

 losses  administrative subsidies  gain sharing  interest AIP Reporting Responsible for taking actions to ensure timely and accurate data submission to FCIC, including but not limited to submission of:

 accurate and detailed eligible crop insurance contract data and other supporting information (e.g., CIMS, COI, Agency/Company employee, etc.) to FCIC in the format prescribed in this Appendix  information certifying review of MAX yield data to support change requests  properly completed PASS error reports to DQS, after analysis or for guidance in correcting rejected data that is present on the PASS error listing  data corrections to timely resolve reconciliation differences  electronic loss data for escrow funding  certified hard copy or electronic monthly/annual operations reports (recap and worksheets), and all other supporting reports (e.g., premium due worksheets) by reinsurance year  producer premium payment information by the accounting cut-off date for the calendar month after the billing date

3 System Overview______

A. PASS Overview

2nd Draft February 23, 2010 RMA-Appendix III 6

1. PASS and RAS are two integrated data processing systems. PASS receives and performs validations on transmitted data. Data validated by PASS is loaded to RMA databases. Together they provide RMA with a mechanism to provide reasonable assurance that data received is accurate, that errors are corrected timely, that information contained on Monthly Operations Reports certified by the AIP are accurate for the validated data, and appropriate accounting entries are made in RMA’s Financial Accounting Systems. An overview of these two systems follows.

a. Data supplied to FCIC for an AIP is processed through PASS. The data is checked for proper reinsurance year format. All transmitted data that is accepted will replace previously accepted data on a policy level.

b. Validations are performed on submitted transactions for data accuracy and compliance with policy, procedure and processing requirements. The PASS performs required edits on each transaction to the extent practical before rejecting a transaction. Upon completion of editing, a report is generated which summarizes the acceptance, rejection and suspension by record type and liability, premium and indemnity amounts from the transaction. Records which were found in error are system-generated output that is sent to an AIP after each edit completes.

c. Error processing is the validation that occurs from the record submission process and provides the AIPs a way to track and resolve errors that occur both within the file submission process and within the records submitted.

d. As part of the PASS/RAS operations, an AIP will be required to reconcile data contained within their systems with data submitted to and accepted by RMA. As a means of assisting the AIPs in reconciling their systems with PASS, RMA will return both AIP and RMA calculated values in rejected and accepted records for each batch submitted.

e. The DQS provides operation support for the PASS and eDAS systems. All questions regarding data distribution reporting, and validation should be addressed to the AIP’s DQS representative.

See Exhibit 97 for a chart displaying the flow of data from AIPs to RMA

B. eDAS Overview

1. eDAS is a real time system operating in a web environment designed to edit transmitted data from AIPs. AIPs will send data in Extensible Markup Language (XML) format to be processed by eDAS or, for the 2011 reinsurance year only, use RMA’s web application to input required information to eDAS. After performing a series of edits on the data, an SML transmission with all input data received from the AIP and output data defined by RMA will be sent back to the AIP in the same order they are processed. The transmission will also notify the AIP of its acceptance or rejection, and if rejected, errors will be included in the return transmission.

2nd Draft February 23, 2010 RMA-Appendix III 7

2. eDAS will perform a series of edits on the current data. The type of data and edits performed will be outlined later in Appendix III. Edits are done in a series of steps. If any step fails, no other edits beyond the current step will be done.

a. First, basic edits are done. Some of these edits include a required check, optional check, numeric check, alphabetic check and validity of codes check.

b. Next, conditional rules apply. These rules apply to Appendix III tags that will only be present based on the value of other Appendix III tags.

c. Advanced rules include ADM cross reference checks and inter-field comparisons. If needed for the current Appendix III section, the corporate calculation modules are run to determine premium or indemnity.

d. Calculation validation edits are performed to determine if the AIPs calculated values match RMA’s calculated values.

e. Post processing Rules are performed as the final step, and include checking the Underwriting Capacity Manager (UCM)

f. RAS will be used to generate accounting reports containing AIP data processed by eDAS. Data will be taken directly from the database to feed RAS.

4-10 (Reserved)

2nd Draft February 23, 2010 RMA-Appendix III 8

Part 2 Organizational and Formatting Standards

11 PASS Submission Requirements __

A. PASS Submission

1. Monthly submission of data is mandatory through annual settlement if any activity occurred during the month. All data submitted will be processed through PASS as soon as possible. Occasionally, the system will be unavailable during normal operation hours due to scheduled or emergency maintenance. Companies will be notified as soon as possible in these cases. Transmission files between 2 and 1,000,000 records will be automatically processed during operations hours Monday through Friday. Operation hours for all reinsurance years are Monday 6:00 a.m. to 11:00 p.m., Tuesday through Thursday, 6:00 a.m. to 2:00 a.m. and Friday 6:00 a.m. to 8:00 p.m. Any transmission received after cutoff or a file that is too large to be completed during the operation hours will be processed in the next operation period.

a. The Company is limited to submitting data through automated systems for 3 years following the first annual settlement for the reinsurance year. Settlement of claims still in litigation, arbitration, or any administrative proceeding more than 3 years after the first annual settlement for such reinsurance year must be reported to FCIC and will be processed manually following the resolution of such action

i. Unless otherwise permitted by FCIC in this Appendix, the Company may not submit estimated data for the purpose of establishing premium, liability, or indemnity.

b. “Transaction cutoff date” for weekly data reporting is 8:00 p.m. central time on Friday of each calendar week. A transaction week begins with Saturday and ends with Friday. Any date that falls on a Saturday will be due by the following week’s transaction cutoff date.

c. “Transaction cutoff date” for monthly data reporting is 8:00 p.m. central time on Friday after the first Sunday of the month.

d. RMA may deviate from submission reporting requirements when necessary to ensure accurate and timely data processing. Deviations from stated reporting requirements may occur only in cases of material monetary discrepancies created by the processing of inaccurate or untimely data.

2. Companies must contact RMA prior to submitting transmission files over 1,000,000 records. RMA will schedule these files to be processed based on the availability of the operating system. This is required for validation purposes and to allow time for correction and resubmission of rejected transactions to FCIC before the monthly transaction cutoff date for processing.

2nd Draft February 23, 2010 RMA-Appendix III 9

[Note: NCIS believes there are inconsistencies in the instructions between #3 and #4 below, in addition to typographical errors. Please see our comments to the 1st draft for recommended changes to these two paragraphs.]

3. In order to correctly process files delivered by the AIPs to the FTP server, the file structure must submit the 2 digit AIP Code, 4 digit reinsurance year, and 1 digit application code. For example:

AIP Code XX Reinsurance Year 2011 Application Code 3 Submit File Format XX20113.ZIP

The file formatting rule applies only to the file submitted to the FTP server. Each ZIP file must contain only one file within it. There are no format rules for the name of the file contained within the ZIP file. All data must be pipe-delimited, with no extra pipe at the end of the line. All fields requiring a sign (+/-) will be noted with a leading “S” in the “Format” column. This sign will be included in the Maximum Length field. Example: S9999.99

4. All files are immediately date/time stamped when they land on the FTP server. Once an AIP submits a file to the individual “Upload” folder the FTP service performs the following checks:

Check # 1 - FILE SUBMISSION CHECKS If corrupt and cannot be opened, it is moved to the common upload folder with a dot-BADZIP ZIP File Validity Check extension File is moved to the common upload folder with More Than One File inside ZIP a dot-BADZIP extension. If the name is not the same as the AIP indicated in the user id that submitted the file, the file is moved to the common upload folder and the name of the file is modified to indicate that the File Name Match with User ID file is invalid with a dot-BADAIP extension. Check #2 - SYSTEM LEVEL ERROR CHECKS FTP Server service will leave the file(s) in the staging folder. When the SQL server becomes SQL Server Folder Not Available available, the files are copied FTP Transfer Service will attempt to copy the file again. If it still does not match, an error is logged to the file system and an e-mail is sent to the support team. The FTP Transfer Service will File size on SQL Server does not match the suspend all further copying until the issue is FTP server resolved. RETURN ZIP FILES TO COMMON DOWNLOAD FOLDER [AIPCODE][REINSURANCEYEAR] [APPLICATIONCODE][BATCHNUMBER]. ZIP XX2011P0003.zip Appended output fields and a filename of [AIPCODE][REINSURANCE YEAR][APPLICATIONCODE][BATCH Original Text File Return Name NUMBER].TXT 2nd Draft February 23, 2010 RMA-Appendix III 10

Unknown Record Text File Return Name XX2011P3Unknown.txt Exception Record Text File Name XX2011P3Exception.txt Contains errors in which validation could not Unknown Record Contents (P98Z) occur due to the error. Reinsurance Year does not match the Unknown Reason Code 1 Reinsurance Year on the batch file name AIP Code does not match the AIP Code on the Unknown Reason Code 2 batch file name Record Type not in list of accepted Record Type Unknown Reason Code 3 Codes (by Reinsurance Year) Record has the wrong number of delimiters for Unknown Reason Code 4 the Record Type Unknown Reason Code 5 Record is missing pipe delimiters One or more record columns exceed allowable maximum width. The P98Z exception record contains a filed called “OverflowColumns” that contains the index of all fields in the input record that were too large to fit into their associated staging table. The index is 1-based, and indicates the position in the current row where the field was too large. If it has more than 1m rows or any single row is greater than 500 characters, it is considered a malformed file and the entire batch is dumped. The zip file will contain a single P98Z record which will have the name of the submitted file as it exists in the AIPs upload folder. If the number of records exceeds the maximum allowed the file is considered malformed and the Malformed Batch code contains a malformed file, “M”. If any single row exceeds the maximum allowed length the batch is considered malformed and the Malformed Batch Code contains a Malformed Unknown Reason Code 6 Row, “R”. Record type outside of valid submission Unknown Reason Code 7 startdate/enddate. Contains errors in which validators using requirements defined in the Appendix III resulted in the capture of errors within the record Exception Record (P99Z) and at the record level Exception Record Process Result Codes identifying the status of the processing for that record. When record level rules are validated, the field name and number will be left blank and the Rule ID will contain the number of the record level error that has occurred. A Accepted Rejected, but with an established LRR, or K Escrow Fund recorded as appropriate M Message R Rejected W Warning System Level Error Handling within the CCAVE process includes the following scenarios. An event is logged to the file system and an e- 2nd Draft February 23, 2010 RMA-Appendix III 11

mail is sent to the support team. The validation process is then aborted for that batch and Validators encounter an error and cannot processing of new batches is suspended for all generate the SQL statement AIPs. An event is logged to the file system and an e- mail is sent to support team. The validation SQL statement generated by the validators process is aborted for that batch and processing causes an error when run against the database of new batches is suspended for the AIP and server. Reinsurance Year associated with the error. Max length of an individual row is 5,000 where an individual row exceeds 5,000 ch it becomes a CRDS will capture individual unknown rows malformed batch CRDS will log file index information on malformed batches It will not capture the submitted data

5. Upon successfully passing all edits, accepted data will be included in the Monthly Operations Reports generated by RAS. Failure of data to pass all reporting and edit requirements in this Appendix may result in such data not being accepted for payment on the Monthly Operations and Annual Operations Reports. Data must be electronically transmitted successfully and completely received by the transaction cutoff date to be included in that week’s transactions. Monthly Operations Reports will be prepared based on data received and accepted by the transaction cutoff date for monthly reporting.

6. Data must be submitted on a reinsurance year basis. The 2011 Reinsurance Year data would include the following crop year data:

a. 2011 Avocados[Note: should this be 2012?] b. 2010 Raisins c. 2012 Citrus (Arizona, California, Florida and Texas) d. 2012 Florida Fruit Trees e. 2012 Nursery f. 2011 Texas Citrus Trees and all other crops

7. All data relating to each respective Reinsurance Year must be included in the same submission, with separate submissions required for each reinsurance year.

8. The amount of premium submitted by the AIP cannot exceed the maximum premium limitation approved by RSD. With each PASS edit, AIPs will receive the Year-to-Date accepted totals on the .sum report. This report notifies the AIP of the summary statistics, including premium accepted as of the report date. When the percentage has reached 100% of maximum premium limitation approved by RSD, RMA will determine whether subsequent processing will be suspended. Accounting reports will be generated based on data received prior to any suspension.

9. Eligible crop insurance contracts may be accepted any time up to the 1st annual settlement for the reinsurance year. Thereafter, policies will be rejected if they are originally submitted after the 1st annual settlement. If a situation arises that causes the AIP to be unable to meet this cutoff, justification may be submitted to the DQS representative for RMA review to determine if a waiver is appropriate.

2nd Draft February 23, 2010 RMA-Appendix III 12

10. Fund Designation

a. AIPs may designate eligible crop insurance contracts with an accepted Type 9 record to the Assigned Risk Fund by the fund designation cutoff date. AIPs may remove previously assigned Assigned Risk Fund designations on eligible crop insurance contracts by the fund cutoff date. All eligible crop insurance contracts not designated to the Assigned Risk Fund will automatically be placed in the Commercial Fund. Fund designation cutoff dates will be determined for eligible crop insurance contracts as follows:

i. For an eligible crop insurance contract associated with an agricultural commodity with a fixed sales closing date, (including those with multi-year Written Agreements after the initial year), the Type 9 record must be accepted by PASS by the weekly transaction cutoff date for the week including the 30th calendar day after the sales closing date.

ii. For eligible crop insurance contracts with extended sales periods (i.e., sales are permitted beyond the sales closing date shown in the special provisions), the transaction cutoff dates for the designation of policies to the Assigned Risk funds are:

1. For new policies, the later of the transaction cutoff date for the week containing the 30th calendar day after the eligible producer signature date or the transaction cutoff date for the week containing the 30th calendar day after the sales closing date.

2. For carryover policies, the transaction cutoff date for the week containing the 30th calendar day after the sales closing date.

iii. For written agreements requiring annual FCIC approval or for the initial year of an eligible crop insurance contract associated with a written agreement only, (excluding Written Agreement types GP, HR, NL, SP, UA), the Type 9 record must be accepted by PASS by the weekly transaction cutoff date for the week including the 30th calendar day after the RMA written agreement approval date (Print Date.)

iv. For AGR-Lite the sales closing date of 3/15 will be used for new insureds. For Carryover AGR-Lite insureds the cancellation date of 1/31 will be used. For AGR, the sales closing date of 1/31 will be used for all insureds. The Fund must be accepted by eDAS by the weekly transaction cutoff date for the week including the 30th calendar day after the applicable date.

v. If the actuarial documents or ADM have more than one sales closing date for the eligible crop insurance contract, the earliest SCD will be used to determine the fund designation cutoff date, unless the type or practice is reported to indicate the specific SCD.

1. For crops in counties with both Fall and Spring Sales Closing Dates, if the fall crop is not planted and a zero acreage record is accepted for the fall 2nd Draft February 23, 2010 RMA-Appendix III 13

crop, the fund designation for the spring crop may be changed up to the fund designation transaction cutoff date for the spring crop.

vi. If an “Added-county” block is used on applications and/or contract change forms in accordance with the Document and Supplemental Standards and Crop Insurance Handbooks, they may timely indicate the primary (designated) county for fund designation by entering the appropriate field value in the multi-added-county flag field for the location state, policy number, crop year and crop code. The primary county for fund designation does not have to match the primary county used for the additional county provisions on the “insurance in force” record (Type 14.)

1. Subsequent counties established under the “Added-county” procedure and transmitted to PASS after the fund designation deadlines, must be placed in the same fund as the primary (designated) county. Subsequent counties are indicated by placing the appropriate value in the Added-county flag field.

2. Only category B crops (excluding Forage Production) qualify for added- county.

3. Subsequent counties can be added after Fund designation cutoff if an insured does not have an interest in any other crop in the added county.

4. Companies must also identify the primary (designated) county policy key (location state/county, AIP number, policy number, crop year, crop code and type code) in the added-county reference policy key fields.

vii. High Risk Ground, and specialty types of soybeans and barley may be excluded from a revenue plan of insurance and insured under a yield based plan of insurance. The fund designation for high risk ground may be different than the primary/revenue plan fund designation.

viii. When RMA approves alternate crops, the Type 9 record must be accepted by PASS by the weekly transaction cutoff date for the week including the 60th calendar date after the RMA approval date.

b. AIPs are to notify their DQS representative via e-mail immediately of any problems or issues that may impact previously accepted eligible crop insurance contract data or which prevents timely acceptance of data.

c. Livestock price insurance contracts accepted by the UCM must be designated to the Private Market Fund within two Federal business days of the acceptance date of the contract by FCIC.

11. Determination of LRR Transaction Cutoff Date

a. The ADM 3, Dates Record contains a modified Sales Closing Date to accommodate sales closing dates falling on a non-business day. It also contains an Extended Sales Closing Date if RMA extends a sales period. If there is not a modification or extension, all three 2nd Draft February 23, 2010 RMA-Appendix III 14

date fields will contain the same date. PASS uses the Extended Sales Closing Date to calculate LRR and fund cutoff dates (this would be the latest possible date.)

i. The Type 10 and 14 records identify data elements required for timely reporting of an eligible crop insurance contract. The late change date field will reflect the date of the batch where one or more of these elements were changed. If the company resubmits the 14 record back to the lockdown coverage level, price election percentage and market price indicator, PASS will reverse the reduction to the lockdown reduction percentage.

b. The LRR transaction cutoff date will be determined for eligible crop insurance contracts in accordance with the SRA, except for those eligible crop insurance contracts meeting the following conditions:

1. RMA approved written agreements excluded from LRR cutoff determination under Section 3

High Rate Area (HR) Acreage not harvested or planted in prev. year (NB) Listing Reconsideration for Tobacco 2005 (TL) Small Grains Interplanted (SG) Seed Potato acreage > 12% (SP) Written Unit Agreements (UA) Unrated Land (UC)

ii. Additional County Application

If the eligible crop insurance contract was sold under the additional county provision, any subsequent counties will be accepted with the same LRR determination as the designated primary county contract.

iii. Multiple Sales Closing Dates

If the eligible crop insurance contract has more than one sales closing date for the eligible crop insurance contract, the earliest SCD will be used to determine the LRR transaction cutoff date, unless the type or practice is reported to indicate the specific SCD.

iv. Successor-in-Interest [Note: Is this still applicable for 2011?]

For successor-in-interest changes to a policy between sales closing date and date insurance attaches to prevent LRR determination, additional data must be accepted by PASS. After insurance attaches successor-in-interest is not applicable for reporting until the subsequent crop year.

12) CIMS Discovery Reports

2nd Draft February 23, 2010 RMA-Appendix III 15

a) Please describe the complete process by which CIMS discovery reports are generated and distributed. b) Any reconciliation of eligible crop insurance contracts on a CIMS discovery report will be conducted as specified in Appendix IV. c) CIMS discovery reports may be released at a lower tolerance level percentage then is required for any reconciliation specified in Appendix IV. In such case, it will be at the Company’s sole discretion to report any codes for purposes of clearing the eligible crop insurance contract from the discovery report.

B. eDAS Submission

1. Data will be processed through eDAS in real time. eDAS will be operational 24 hours a day and 7 days a week for certain Appendix III sections with exceptions for maintenance. Appendix III sections available in the operational hours listed above, are Agent, Entity, SBI, Policy, Fund, Crop Policy, Adjuster (if applicable), and Reviewer (if applicable). The insurance plan will determine the availability of eDAS for the Premium and Indemnity sections. For example, the Livestock Risk Protection plan will fail any premium or indemnity records sent during certain hours of the day due to ADM data unavailability. If maintenance is required, eDAS will be temporarily shut down, fixes will be migrated into eDAS, and eDAS will be turned on again. eDAS will be unavailable for processing data daily from 12:00 p.m. to 1:00 a.m. for daily maintenance. If at this time eDAS is in the middle of processing data, the data not processed will be rejected.

2. eDAS requires the transmission of Appendix III sections in a certain order. This order by section is as follows:

a. Agent, b. Entity, c. SBI, d. Policy, e. Fund (AGR/AGR-L), f. Crop Policy, g. Reviewer (if applicable) h. Premium, i. Fund (Livestock), and j. Indemnity

i. If data is sent out of order, eDAS will send an error back to the AIP in its XML output for the current transaction. For example, Crop Policy data with an Agent ID code must have an accepted Agent section for that Agent ID code.

3. eDAS does not require the bundling of an entire set of sections for a policy. For example, once the Agent data has been accepted by eDAS, it never will have to be sent to eDAS again unless the AIP wishes to update it. Agent data is not required each time Policy or Premium data is sent. This also applies to the SBI data. For example, if five SBI records are required for the Entity, one

2nd Draft February 23, 2010 RMA-Appendix III 16

may be sent today while two more may be sent next week and the remaining two may be sent in two months from now.

4. AIPs will indicate the type of transaction currently being sent to eDAS using the Appendix III fields process flag and change flag.

a. Process Flag indicates whether the transaction is an original, a modification, a deletion, a validation, a quote, a retrieval, cancel or re-instate as defined below.

Transaction Type Function Original First Time Entry. All edits will apply Update to an existing record. Key fields and the updated values Modification are required. All other fields will be ignored. Marks the currently accepted record as removed. Key fields will Deletion be required for the delete. All other fields will be ignored. Will not consider the current transaction as real, but only as a test. All Appendix III edits will apply and errors will be returned to the Validation AIP. Only performed on sections associated with corporate calculation modules. Only values necessary to perform the quote will be required as input. A quote will not be treated as a real transaction but will return errors on required fields and corporate calculation Quote results to the AIP. Retrieval Indicates an AIP is requesting the information. Indicates an AIP is requesting the information to be canceled. Cancel Not applicable for AGR/AGR-L. Reinstate Indicates an AIP is requesting the information be reinstated (reverse the use of cancel (flag 8)). Not applicable for AGR/AGR-L.

b. Change flag of 1, 2 or 3 required on an update transaction only and indicates the level of change authority associated with the record. Only fields with a level of change less than or equal to the change flag may be modified. For a Change Flag of 3, the AIP must submit a request to RSD for approval.

i. Only the latest eDAS transactions will be stored in the eDAS database. Input and output data will be stored when an original, update, delete, or cancel takes place. Each of these transactions will also be kept on the web server for a period of time for companies to download. Once an original update, delete, or cancel passes all edits and therefore was accepted by eDAS, it will be copied to the policy database. This will be done frequently during the day.

ii. Quote or validation transactions will not be stored in the eDAS database or written to the Web server.

5. eDAS Retrieval Process

2nd Draft February 23, 2010 RMA-Appendix III 17

a. There are two ways of retrieving data that has been posted to eDAS: i. Process Flag 7 – preferred method for reconciling data between eDAS and other systems, since it returns only what has been accepted directly from the eDAS database, and is therefore, much faster than Transaction Retrieval. 1. Submit a transaction to eDAS with no more than one of each of the records that are desired. On each record, set the process flag to 7. This instructs eDAS to look for the record in the database, and return records that match the criteria sent in. As much or as little of the record may be sent in, depending on how specific the request is. The only required fields are: a. insurance_provider, b. reinsurance_year, c. insurance_plan_cd (where applicable).

ii. Transaction Retrieval

1. Request a range of actual transactions submitted to eDAS. This method reads the transactions off of the disk, and is slower than using the Process Flag 7. Following is a description of the retrieval processes, as well as parameters that may be used to determine what should be returned.

AGR/AGR Lite and Livestock (2005 and subsequent)

HTML POST/GET https://online-livestock.rma.usda.gov/apps/edas_service/retrieve.aspx

Filtering Parameters start_dt (format mm/dd/yyyy) end_dt (format mm/dd/yyyy) start_tm (format hh:mm:ss 24 hour clock) end_tm (format hh:mm:ss 24 hour clock) section_name (comma delimited list of sections desired) start_trans_num (Transaction Sequence Number of first section to be returned) end_trans_num (Transaction Sequence Number of last section to be returned) accepted_rejected (Comma delimited list of character strings.) Values may be A for accepted only, R for rejected only, and B for both accepted and rejected. section_required (Comma delimited list of character strings.) Values may be Y, section required, or N meaning section not required process_type (string that can be either “actual”, “validate” or “all”) Designates what type of process flags to return. Include_warnings (string that can be either yes (Y) or no (N)) Use Y to return XML with warnings, N to exclude XML with warnings.

2nd Draft February 23, 2010 RMA-Appendix III 18

Search Parameters (returns transactions submitted in the last 90 days matching the following criteria Method by which transaction was submitted to eDAS. Valid values are webservice, transaction_method webapp or blank. reinsurance_year Reinsurance year of the records desired company Company listed on the policies related to the records desired insurance_plan_cd Insurance plan listed on the crop policies related to the records desired. policy_number Policy number of policies related to the records desired. id_number ID number of entity or SBI listed on policies related to the records desired location_state State listed on policies related to the records desired location_county County listed on policies related to the records desired. agent_ssn Agent SSN listed on crop policies and premiums related to the records desired. Example: https://online_livestock.rma.usda.gov/apps/edas_service/retrieve.aspx?start_dt=10/01/2010&end_dt=10/05/2010§ion_ name=agent,policy,crop_policy&transaction_method=webapp&reinsurance_year=2011&accepted_rejected- A,A,A§ion_required=Y,Y,Y&process_type=actual and include_warnings = Y

Will return accepted Agents and Policies with or without warnings from 10/01/2010 through 10/05/2010, where the records were submitted using the web application and the reinsurance year was 2011. Additionally, only policies with at least one accepted crop policy record will be returned. This search will not return any validate only records (process_flag of 4&5).

SOAP https://online_livestock.rma.usda.gov/apps/edas_service/main.asmx

Retrieve transactions from any date, using the following method. Transaction getTransaction(DateTime startDateTime, DateTime endDateTim, int startTransNum, int endTransNum, int startRecNum, int endRecNum, string[] sectionName, string processType) startDateTime A DateTime object representing the start date and time that you want to retrieve. endDateTime A DateTime object representing the end date and time that you want to retrieve. An Integer that represents the first trans_sequence_num you want to retrieve. 0 for all. startTransNum An Integer that represents the last trans_sequence_num you want to retrieve. 0 for all. endTransNum startRecNum An Integer that represents the first record umber you want to retrieve. 0 for all. endRecNum An Integer that represents the last record number you want to retrieve. 0 for all. sectionName An Array of strings representing the sections you want to retrieve. A String representing what process flags to return. “All” to return validates and actual processType records. To search transactions within the last 90 days, use the following method. Transaction getTransaction(DateTime startDateTime, DateTime endDateTime, int startTransNum, int endTransNum, int startRecNum, int endRecNum, string[] sectionName, string[] acceptedRejected, string[] sectionRequired, string transactionMethod, string processType, int reinsuranceYear, int insurancePlanCd, int company, int locationState, int locationCounty, int idNumber, int policyNumber, int agentSSN) startDateTime A DateTime object representing the start date and time that you want to retrieve

2nd Draft February 23, 2010 RMA-Appendix III 19

endDateTime A DateTime object representing the end date and time that you want to retrieve An Integer that represents the first trans_sequence_num you want to retrieve. 0 for all startTransNum An Integer that represents the last trans_sequence_num you want to retrieve. 0 for all. endTransNum startRecNum An Integer that represents the first record number you want to retrieve. 0 for all endRecNum An Integer that represents the last record number you want to retrieve. 0 for all sectionName An Array of strings representing the sections you want to retrieve An Array of characters representing whether sections in section name must be A – acceptedRejected accepted, or R – rejected. “B” for both. sectionRequired An Array of characters. Y meaning required, N meaning not required. Default is N. A string indicating the method by which the transactions desired were submitted to eDAS. transactionMethod Valid values are webservice, webapp or blank. A string indicating what process flags to return. “Validate for validate only records, processType “actual” for actual records, or “all” for all records. Default is actual. reinsuranceYear An integer indicating the reinsurance year of the records desired An integer indicating the Insurance Plan listed on the crop policies related to the records insurancePlanCd desired. An integer indicating the company listed on the policies related to the records desired. company locationState An integer indicating the state listed on policies related to the records desired locationCounty An integer indicating the county listed on policies related to the records desired An integer indicating the ID number of entity or SBI listed on policies related to the idNumber records desired policyNumber An integer indicating the Policy number of policies related to the records desired An Integer indicating the Agent SSN listed on crop policies and premiums related to the agentSSN records desired A Boolean indicating whether to include or exclude XML with warnings. Use “true” to includeWarnings include warning and “false” to exclude warnings. Note: the second web method is an overload of getTransaction with more parameters. In the SOAP packet, it will be shown as searchTransaction instead of getTransaction. This will not affect Microsoft.Net developers who can continue to use getTransaction in their code.

iii. The three web methods to allow for eDAS offline processing are described below: Allows an AIP to send XML offline. The trans_sequence_num is returned to the sendOfflineTransaction user Allows an AIP to poll eDAS using the trans_sequence_num to determine if eDAS has finished processing. A return value of “True” is returned if eDAS is finished. getOfflineTransactionStatus A return value of “False” is returned if eDAS is still processing the transaction. An overload of getTransaction allows an AIP to retrieve XML using the getofflineTransaction trans_sequence_num as its only input parameter.

2nd Draft February 23, 2010 RMA-Appendix III 20

6. Report/submit the minimum number of insurance contracts and indemnified contracts required to be reviewed in Appendix IV. Flag contracts that are reviewed.

C. CIMS SUBMISSION

1. Companies may request insured producer data from CIMS. Before CIMS will return any data to an AIP for a requested insurance policy, the producer’s policy must have been previously accepted by RMA and loaded into the CIMS database.

2. AIPs may request CIMS information by submission of a CIMS Request, Type 05 Record. The request record will contain fields for the RMA policy key and the FSA administrative state and county (if needed) and will be used to retrieve FSA producer and/or crop acreage information. The request will be performed by matching the RMA location state and county to the FSA location state and county. There may be cases where the request must be made based on the FSA administrative state and county. In these situations, the AIP will submit the FSA administrative state and county on the request record and the process will use these values and not the RMA location state and county. If the AIP request indicates that a statewide application exists, the returned acreage information will be based on the RMA location state matching to the FSA location state or matching to the FSA administrative state if the FSA administrative state is submitted with the request.

3. The AIP will be able to request three sets of information for an insurance policy;

a. producer information for the primary insureds, including spousal information b. producer information for primary insureds and the reported SBIs, and c. acreage information for the primary insureds

12 Telecommunications______

A. PASS Telecommunication Processing

1. Electronic transmission is mandatory for submission of data and dissemination of reports. Electronic transmission provides faster processing turnaround, and more automated processing of data submissions and report handling. This method of processing allows RMA to direct its resources to error resolution and AIP processing support functions.

2. RMA’s Insurance Provider Server (IP Server) is a system designed to provide data transmission services for all AIPs and associated organizations which report to RMA. In addition to this, the IP Server also supports connections to RMA’s system. Each AIP is responsible for obtaining telecommunications services from any common carrier of their choosing. The IP Server supports VPN and Dial-up connections to the IP Server.

2nd Draft February 23, 2010 RMA-Appendix III 21

3. All AIPs will need to complete security form FCIC-586 before a connection ID can be provided. Once that ID is provided, connection details are as follows:

Dial-Up – Connectivity can be ITU V.90 industry standard modem speeds up to 56 KBPS achieved using Modems should be configured with no parity, 8 data bits, 1 stop bit and full duplex. VPN Connections – 2 Available Options Connection must be encrypted with the following parameters. 3DES Encryption Algorithm, SHA1, Authentication Algorithm, and Pre-Shared Secret as Authentication Mode Checkpoint Secure Client Client workstations use Checkpoint client which is a free download from the Internet. RMA will provide connectivity documentation for the initial setup and connection. Technical support on the client’s side will be the responsibility of the AIP. A permanent connection to the public Internet is required Checkpoint Site to Site VPN An industry standard firewall capable of a Site to Site Connection VPN Tunnel over the public Internet. Technical support on the client’s side will be the responsibility of the AIP.

4. The IP Server can be reached at 1-800-847-3834. This is a toll free call available from anywhere in the continental United States. It currently operates forty-six (46) on ISDN-PRI (Digital) service configured as one access group. Any AIP who chooses may establish a dedicated access to the IP Server via the above mentioned Site to Site VPN connection. Those AIPs who wish to have dedicated access would be required to provide the compatible equipment as listed above. AIPs considering a dedicated connection to the IP Server should contact the System Administration Section before making any purchases.

5. Except for the maintenance periods, AIP may initiate the transmission at the AIP’s discretion during operational hours. This could include multiple daily submissions.

6. RMA will retain the option to stop automatic edit processing, at its discretion. AIPs will still be allowed to continue transmitting data, although it is not immediately processed through the PASS. A temporary stop in automatic edit processing should only occur in case of a PASS processing problem, maintenance, or when the timing of edit revisions must coincide with a particular point in time of the submission cycle. In the event that automatic edit processing is stopped for more than one hour, the AIPs will be notified when processing has resumed. All submissions sent during this period will be processed separately in the order they are received.

B. PASS Report Handling

All reports, error listings and operations reports will be made available to the AIP for downloading via the Web Server.

C. eDAS Telecommunications/Security 1. All eDAS transactions will take place on a web server. A user id and password are required to use eDAS. These items will be given to each AIP by RMA upon request. XML data transfer 2nd Draft February 23, 2010 RMA-Appendix III 22

will take place along a 128-bit SSL link. Performing a HTTP XML post to eDAS may be done with many languages including Perl, Java, or Windows Server Com objects XMLDOM and XMLHTTP.

2. AIP must submit a FCI-586 to RMA Security for approval. Upon approval RMA Web Team will establish a Virtual Host on the Web Server and assign a VPN account. RMA Security will assign a Web App account.

3. For the 2011 reinsurance year only, there are two versions of the web app, Admin and Sales. In both cases, the web app is secured by 128-bit SSL. The Sales web app is not restricted to IP address since an agent could log in from somewhere other than the AIP office. The Admin web app is secured by the AIP ID and password provided by RMA (changed every 6 months). The AIP controls the ID and password of their agents to be used for the Sales web app. Agents can log into the Sales web app using the ID and password that is submitted via the agent section. If an AIP does not provide an ID and password for an agent, that agent will not have access to the Sales web app. For problems related to ID or password contact RMA Web Team at 816-926- 7301 or via email [email protected].

URL’S POST (SOAP) Test https://online-test.rma.usda.gov/apps/edas_service/main.asmx Production https://online-livestock.rma.usda.gov/apps/edas_service/main.asmx POST (W/O SOAP) Test https://online-test.rma.usda.gov/apps/edas_service/index.aspx Production https://online-livestock.rma.usda.gov/apps/edas_service/index.aspx

13 Processing Considerations______

A. PASS Processing considerations

1. RMA will maintain Policy Databases which contain the current net cumulative effect of all transactions for an eligible crop insurance contract and required supporting data. An eligible crop insurance contract is identified in the policy database, based on the following fields, AIP, Location State, Policy number and Crop Year. All transmitted records accepted for a policy fully replaces all previously accepted data for the eligible crop insurance contract.

2. RMA Internal use only, and Filler record type fields will be initialized by RMA. AIP transmitted data will be replaced with appropriate default value and may be overlaid with RMA Internal values.

3. Acceptable record types and specific handling considerations for PASS are as follows:

Type 5 Record CIMS Type 5 records are used to request insured producer data from Request CIMS. Type 5 records are not processed by PASS. For 2011, the Type 5 record will be used to retrieve approved FSA producer and/or crop acreage information from the CIMS. The Type 5 records will be transferred from the secured IP Server to the CIMS for processing. The request information, along with the original 2nd Draft February 23, 2010 RMA-Appendix III 23

request record and status codes outlining success/failure in the process, will be placed on the IP server returned to an AIP. The AIP may then extract the CIMS information from the secured IP server. Type 9 Record Fund Timely acceptance of the Type 9 record is required to establish the Designation eligible crop insurance contract into the Assigned Risk Fund. Any eligible crop insurance contract not designated by the AIP to the Assigned Risk Fund will be automatically designated to the Commercial Fund. If an eligible crop insurance contract was established into the Assigned Risk Fund, the policy can be automatically established in the Commercial fund by deleting the Assigned Risk Fund designation before the Fund Designation transaction cutoff date for the eligible crop insurance contract. If a Type 9 Residual record is not accepted for an eligible crop insurance contract, it will be designated as commercial. The type code and practice code may be required for crops with more than one sales closing date to determine fund designation based on the sales closing date. Type 9 records are submitted for the eligible crop insurance contract on location state and location county basis. Once a record has been accepted it does not need to be resubmitted. RMA may accept fund designations records after the ADM Records have been released for the crop. Refer to Fund Designation Guidelines in Exhibit 9-1. Type 10 Record, 10A, Type 10 records are used to establish a policy and provide 10B Policy Records information regarding the policyholder and entities with a SBI, Spouse, Landlord and Transfer of right to indemnity. A Type 10 record requires at least one Type 14 record to be submitted with it. The Type 10 record identifies the data elements required for the timely reporting of an eligible crop insurance contract.

The PASS requires a Type 10 and 10A record. This is the “primary” insured, and establishes the contract within the system. If a Type 10 is not submitted, then all records for the contract will be rejected. PASS will allow a Type 10 record for each crop year covered under the policy number. All Type 10B records are considered a Spouse, SBI, Landlord or Transfer of right to indemnity entities with a SBI in the farming operations of the primary insured. 10B Other Person SBI records are required for the determination of the timely reporting of an eligible crop insurance contract. If any Type 10 record is rejected, then all records for the contract will be rejected. SBI record requirement is based on the entity type on the primary Type 10 record (See Exhibit 10-1).

A Type 49 Delete record will remove the policy and all records for the policy from RMA’s Databases and Duplicate files. Type 11 Record Type 11 records are used to establish premium and liability for each Acreage 2nd Draft February 23, 2010 RMA-Appendix III 24

acreage line. The record also identifies the land location. Legal descriptions in a section that has a high risk area designation will receive a warning for partial sections and be rejected for sections completely within a high risk area designation.

A Type 11 record will not be accepted until corresponding Type 10, Type 14, Type 15 (if required - See Exhibit 15-4), and Type 27(if required - See Exhibit 27-1) records have been accepted by the PASS. A Type 11 zero acreage record must be submitted for zero acres, uninsured acres, no history acres (no APH records) and units not planted, on the eligible crop insurance contract. To modify data previously accepted, all current and valid records for the policy must be resubmitted. A Type 11 record will not be accepted until after the monthly cutoff preceding the date insurance attaches for the insured commodity. Type 12 Record Type 12 records are used to record/report payments by producers Payment for each eligible crop insurance contract. Only one Type 12 record per payment type code will be accepted for the contract. Type 12 transactions may be removed by resubmitting all applicable records for the crop insurance contract or via the Type 49 delete record with the exception of payment type ‘02’ or ‘03’.

When reporting CAT fee payments (either money or loss credit) using the Type 12 record, use the payment type “02”. A CAT fee receivable must exist before a CAT fee payment is accepted, and the paid amount for CAT fees cannot exceed the total receivable amount reported on the Type 65 record. The paid amount for CAT fees is cumulative. The paid date also must be greater than the debt delinquency date reported on the Type 65 record. Error conditions will occur for any of the following: duplicate Type 12 records, a paid date less than or equal to the debt delinquency date, no match to a receivable, and a paid amount with a $0 value.

When reporting CAT fee payment reversals using the Type 12 record, use the payment type “03”. The paid amount for reversals must equal the paid amount reported using payment type “02”. The paid date must be the same as the paid date reported on the payment type “02”.

The “03” payment type code is the only way to reverse a CAT fee payment. Error conditions will occur for any of the following: duplicate Type 12 records, and the paid amount and/or paid date do not match the previous “02” payment. The Type 49 delete record cannot be used to remove a CAT fee payment. Only the “03” payment type can be used to remove a CAT fee payment.

When reporting state subsidy use payment type code “04”, when applicable. 2nd Draft February 23, 2010 RMA-Appendix III 25

When reporting Financial Assistance Program use payment type code “06”, when applicable. Type 13 Record Type 13 records are used to establish premium and insurance values Inventory Value for Nursery (0073) and Aquaculture (0116). A Type 13 record will Record not be accepted until corresponding Type 10 and Type 14 records have been accepted. In addition, a Type 13 record for Aquaculture (Clams) will not be accepted until corresponding Type 17 has been accepted. A Type 13 record will not be accepted until after the monthly cutoff preceding the date insurance attaches for the insured commodity. Type 14 Record The Type 14 record establishes the crop, county, plan code and Insurance In Force reports the eligible crop insurance contract data determined at Sales Record Closing. The Type 14 record identifies the data elements required for timely reporting of eligible crop insurance contracts. The type code and practice code may be required for crops with more than one sales closing date to determine eligibility based on the sales closing date. Refer to Exhibit 14-1. Type 15 Record Yield The Type 15 records are used to record/report APH yield information for designated crops.

A warning message will be issued to companies when the yield year is less than 1970.

If a Type 15 record(s) is rejected, the corresponding Type 11 record will be rejected. Type 20, 20A Type The Type 21 and 22 Records establish the loss amounts for a given 21 and Type 22 eligible crop insurance contract and the Type 20 Record identifies Records the application or disbursement of loss payments. Loss Total Loss Line Record AIPs must transmit denied claim records to RMA with all Inventory Loss applicable fields recorded for any claim for indemnity inspected by Record (Nursery & Aquaculture) a loss adjuster and denied by the AIP thus resulting in no indemnity payment.

PASS will not automatically accept loss records if the price, coverage level, or market price indicators are accepted or modified after the notice of loss, producer signature date or loss adjuster signature date on the loss records.

Type 20 records are linked by Claim Number to corresponding Type 21/22 records. Therefore, all Type 20 and 21/22 records for an eligibl crop insurance contract from the transaction file will replace all Type 20 and 21/22 records for the eligible crop insurance contract on the Policy database.

If a Type 20, 21 or 22 record is rejected, all Type 20, 21 and 22 record for the Claim Number will be rejected. If a Type 11 or 13 record is

2nd Draft February 23, 2010 RMA-Appendix III 26

rejected, the corresponding Type 21/22 records for the crop are rejected, also all other Type 21/22 records for the Claim Number(s) o the rejected crop, along with all applicable Type 20 records for the Claim Numbers of the rejected Type 21/22s.

Optional: An AIP can submit Type 20 losses with loss total code of ‘D’, Unfunded Escrow, to ensure records clear PASS edits before sending an ‘E’, Escrow Funded. All loss total codes from the Type 20 will need to be sent every time because the sum of the loss totals should equal the indemnity amount on the Type 21/22 records.

Type 20, 21 and 22 Processing: The Type 20 record is submitted in support of the Payable element in the Type 21 or 22 record. There are multiple "buckets" which identify the breakdown of the indemnity amount:  premium on the policy for current year with the loss (M),  premium on another policy for current year(P),  administrative fees (F),  other (O),  recovery of a prior or subsequent reinsurance year premium or loss (R) The total of any loss application code must be greater than zero.

One Type 21/22 record is submitted for each loss line. More than one Type 20 record may be submitted, if needed, to support the 21/22 record(s).

If any of the "Total" fields on the Type 20 Record contain a "P", the corresponding "P/CR Memo State" and "P/CR Memo Policy Number fields must contain the Location State and Policy Number for current year to which the "P" amount will be applied. The RAS will show th generated "P" amounts in the loss credit column of the summary repor on the designated crop insurance contract.

1 If part of the loss is to be applied to an eligible crop insurance contract under a different AIP number than the eligible crop insurance contract with the loss, the "P/CR Memo Company" field must also be entered. If "P/CR Memo Company" is not entered (value of 000),PASS assumes the same AIP number as the eligible crop insurance contract with the loss and will generate the loss credit accordingly.

2 Rejected P/CR Memo Posting

If the P/CR Memo Policy does not exist in the database or the P/CR Memo Policy has zero premium, then the P/CR Memo posting is rejected. Generated P/CR Memo amounts will not be allowed to create an overpayment on a eligible crop 2nd Draft February 23, 2010 RMA-Appendix III 27

insurance contract. Such rejected postings are printed on a RAS error report titled "P/CR memo Reject Report." An example of this report is found in Exhibit 1. This report will be furnished to AIP with their Monthly Operations report. Type 27, 27A The Type 27 records are used to record/report corresponding land ids Records and associated information for the acreage reported on the Type 11 Land ID record. Report the Farm Service Agency Farm Serial Number, Tract Number and Field identifier, or equivalent CLU ID, by the monthly transaction cut-off date for the 1st annual settlemnt for the reinsurance year as follows:

2011 Reinsurance Year – 10% of total acreage for FSA program crops 2012 Reinsurance Year – 20% of total acreage for FSA program crops 2013 Reinsurance Year – 20% of total acreage for FSA program crops 2014 Reinsurance Year – 20% of total acreage for FSA program crops 2015 Reinsurance Year – 20% of total acreage for FSA program crops

For any eligible crop insurance contract that insures an FSA program crop and the insurance policy does not compel the insured to report acres by CLU, the company will not have to report acres by CLU for that eligible crop insurance contract when the insured does not voluntarily provide this information. However, the acres from such an eligible crop insurance contract will count toward the above minimum reporting percentages.

The Land Other Person Sharing P27A contains information about the Land Other Person Sharing relationships. Information contained on th record includes the Key fields necessary to track and identify the land being shared with the producer as well as identifying the Person Sharing in the production. The P27A is optional when reporting acres by CLU on the corresponding P27 record. Type 48 Records This record deletes the following record types: (Note: a final decision Delete Records on the effects of this record within PASS is pending RMA proposal under ITM) Type 49 Records The Type 49 Records are used to remove all records for the eligible Delete Records crop insurance contract from the data base(s) and the Dup process. Only one Type 49 Record will be processed per eligible crop insuranc contract from the transaction file. Subsequent Type 49 Records for th same eligible crop insurance contract will be rejected.

Type 49 records are processed independently after all other record

2nd Draft February 23, 2010 RMA-Appendix III 28

types have been processed for the eligible crop insurance contract. Type 51 Records Type 51 record is a record to report a COI respondent’s potenti Conflict of Interest conflict with a policy. Policy Reporting Record Type 51 records are processed by the AIP for each policy an acceptance of this record is dependent upon acceptance of corresponding 54 or 55 or 56 records. Each record must provide response identifying either a 54 Company Employee, 55 Agent or 5 Loss Adjustor.

All Conflict of Interest questions are required to have an entry. Th information must be for the crop year of the crops reported under th policy.

All Type 51 records reported in a batch will replace all previous reported Type 51 records. The Type 49 delete record has no impact o this Type 51 record. Type 54 Records Type 54 is a record for Agency/Company employee data. Agency/Company Employee Data Type 54 records require a tax identification number for all records. This record also includes Conflict of Interest (COI) question responses.

Type 54 records must be reported for any Company Employee who was required to complete a COI questionnaire under MGR-08-001 when their response to COI question #1 or #2 was “Yes”.

A 54 record must be accepted for the AIP and Company Employee ID before a corresponding 51 record will be accepted. All 54 records completely replace any previously submitted 54 records. Type 54 records will not appear in the Policyholder Tracking System. Type 55, 55A, 55B The Type 55 Records are used to record/report agent information. Record Agent Data Record 55 includes fields related to Conflict of Interest Questionnaire (COI) on the Type 51 record. The Type 55 record must be accepted for the AIP and Agent ID before 51 records will be accepted.

Type 55 records may be processed independently or with all other PASS records. This data will be collected by AIP and will be stored in order to identify agents, provide agent counts for AIP, and facilitate th creation of the Agent Location Directory. The agent records on the database are maintained by the AIPs. The acceptance of Type 11, 13 and 14 acreage records is dependent on acceptance of a valid agent SSN on a Type 55 record.

Multiple records can be submitted for each county serviced by the

2nd Draft February 23, 2010 RMA-Appendix III 29

agent to be used to facilitate access to the active agents and alternative language agents available in the Agent Location Directory. RMA provides agent information to sell crop insurance or livestock insurance as a service to our customers.

The Agent Location Directory will not display information for Inactive or Unlisted agents.

Each submission must include the AIP’s cumulative agent file for the reinsurance year in its entirety. AIPs are to only report licensed and/o certified agents who are actively participating in the delivery of FCIC approved products. The accepted agent records from each submission will replace all previously submitted agent records. Records will be rejected if the individual agent is currently disbarred or suspended.

55A Insurance Agent Agency identifies the Agency for an Agent.

55B Insurance Agent Servicing State identifies servicing area for agen locator. Type 56 Record The Type 56 Record is used to record/report loss adjuster information Loss Adjuster Data Record 56 includes fields related to Conflict of Interest Questionnaire (COI) on the Type 51 record. The Type 56 record must be accepted fo the AIP and Adjuster ID before the Type 51 records will be accepted.

Type 56 records may be processed independently or with all other PASS records. This data will be collected by AIP and will be stored in order to identify loss adjusters, provide loss adjuster counts and facilitate compliance analysis. Each submission must include the AIP’ cumulative adjuster file for the reinsurance year in its entirety. The accepted adjuster records from each submission will replace all previously submitted adjuster records. The acceptance of Type 21 and 22 loss records is dependent on acceptance of a valid loss adjuster SSN on a Type 56 record. Records will be rejected if the individual adjuste is currently disbarred or suspended. Type 57 Record Record 57 includes an additional response related to #19 – Conflict of Quality Control Interest Review. An “R” can be reported for “conflict no longer exists Reporting in place of “Y” or “N”.

The 57 records are to be submitted annually by April 30 following the crop year for all reviews required to be performed by Appendix IV. Type 58 Record Type 58 records are be used to provide damage estimates to USDA, Notice of Loss and keep RMA apprised of potential losses and occurrences by Reporting cause, date, location and type (prevented planting, replant, production loss, other) on a national level. This will be unverified information. Notice of loss records must be submitted within five business days of the date the AIP received the notice of loss for the

2nd Draft February 23, 2010 RMA-Appendix III 30

policy. Multiple Type 58 records must submitted for a crop/county combination using different record numbers. Timely processed Type 10 and Type 14 records are required before a Type 58 record will be accepted. Type 58 records can be deleted using the Type 49 record. Type 60 Ineligible Type 60 records are used to submit information regarding a Producer Input producer’s ineligibility status for participation in the crop insurance Record program. These records must be submitted in a separate file from all other record types and placed in the IT Input directory that has been established for each transmitting AIP on the IP server. Once per day a process collects all files transmitted, validates the data submitted and outputs 3 types of files to the IT Output directory on the IP server : 1) .acp - accepted transactions, 2) .rej - rejected transactions and 3) .err - error codes. The accepted transactions are loaded to the Ineligible Tracking System database and notification letters are generated and distributed to the ineligible producers upon their initial entry into the system for a period of ineligibility. Type 60E Ineligible Type 60E records are generated during the Ineligible Tracking edit Producer Error process. They will contain all errors for each Type 60 record that is Record rejected during the edit process. The file containing these records is placed in the submitting companies’ IT Output directory on the IP server (.err). Type 61 Ineligible Type 61 records are generated from the Ineligible Tracking System Producer Output database and output to the IT Output directory on the IP server for Record all companies. This file is an accumulation created daily after each ITS load of ALL producers that have been reported as ineligible, their period(s) of ineligibility and their current eligibility status. This also includes persons reported by the Risk Management Agency for suspension/disqualification/debarment. Type 65 CAT Fee Type 65 records are submitted along with Type 60 (Ineligible Producer) if Receivable Record the debt is all or partially due to unpaid CAT fees Type 70 Record Type 70 records are submitted monthly by AIPs for their SBOB to reflect the current status of the AIP Database Type 71 Record Type 71 records are returned by RMA identifying any differences at the state level from the SBOB data. Type 81 Record Type 81 records are output records that are initiated by the setting of Policy Holder the Experience Inquiry flag on the Type 14 record (position 92) for an Tracking Experience eligible crop insurance contract. Inquiry If the Experience Inquiry flag is a ‘Y’ only the previous year information will be accessed.

If the Experience Inquiry flag is a ‘F’ the previous five years of information will be accessed

Both the one-year and five year inquiries are based on the ID Number from the associated Type 10 record (position 82) to perform a search against the data to locate all information for the producer and any 2nd Draft February 23, 2010 RMA-Appendix III 31

SBI’s for the crop/state/county contained in the requesting 14 record. The data retrieved is imbedded in the “body” of the Type 81 record (positions 21 - 331) in the same field order and format as that specific in the record type. All Type 10, 11, 14, 15 and 21 records found are returned to the requesting AIP. The Type 14 record that requested the inquiry is imbedded in the Type 81 record when: 1) the value of the Experience Inquiry flag is an invalid value, 2) no prior year records were found for the producer, or 3) when the producer’s prior year insurance was with the requesting AIP. RMA may limit repeated Policy holder tracking requests.

B. eDAS Processing Considerations

1. RMA maintains all eDAS transactions in a database. Exception for new eDAS format, this will be the most recently accepted transactions stored in the database. Once an original, modify, delete, or cancel passes all edits and therefore is accepted by eDAS, it will be copied to the Policy database.

2. eDAS does not require the bundling of an entire set of sections for a policy. Once the data is accepted only the ‘KEY’ and data being modified will need to be resent.

a. Note - under the new eDAS format on an update, only the key fields that define the sections are required plus any changed fields or new sections.

3. Change flag will default to 2 and process flag will default to 1 unless otherwise indicated. A section will inherit the change flag and/or process flag of the parent section unless set by that section. Example: .

4. Acceptable sections and specific handling considerations are as follows:

The AGENT section (Exhibit 112) is used to record/report agent information. This data will be used by RMA to identify agents, provide agent counts for AIP, facilitate the creation of the Agent Location Directory and RMA planning purposes. eDAS will separate agencies for an agent by using the DETAIL_NUM, listed on the APPENDIX III Agent AGENT section in the DETAIL section. Each DETAIL_NUM represents a separate agency (i.e. Agent ID Code). Use ‘comma delimited’ to list multiple directory counties for an agent (Example: 1,2,215). The acceptance of PRODUCER and PREMIUM are dependent on the acceptance of a valid agent SSN. Only report licensed and/or certified agents who are actively participating in the delivery of RMA approved livestock and AGR/AGR-L products. Records will be rejected if the individual agent is currently disbarred or suspended. The ADJUSTER section (AGR/AGR-L, Exhibit 111) is used record/report loss adjuster information. Indemnity section (AGR/AGR-L

2nd Draft February 23, 2010 RMA-Appendix III 32

Exhibit 151-2) is dependent on acceptance of a valid loss adjuster SSN Adjuster Data will be rejected if the individual adjuster is currently disbarred o suspended. The Employee section (Exhibit 113) is used to record/report employee information. The company is required to report employee (other than agent or adjuster) if the employee was required to complete a COI Questionnaire under Employee MGR098-001 when the response to COI question #1 or #2 was ‘YES’

The Conflict section (Exhibit 118) is used to record/report COI information. The company is required to report COI information if any employee has indicated a conflict with a policy. An Agent, Adjuster or Employee section must be accepted for the AIP and COI Respondent Conflict Tax ID before a Conflict Section will be accepted. The Entity section (Exhibit 121) is used to record/report the producer Entity information The SBI section(Exhibit 126) is used to record/report substantial business interests information related to the entity. The company is required to collect and report all entities with significant business interests. This data will include SSN, EIN, and share of the SBIs. SBI Policy The Policy section (Exhibit 122) is used to record/report the policy number The FUND section (Livestock, Exhibit 130 and AGR/AGR-L, Exhibit 131) is used to record/report fund designation information. Livestock - eDAS will generate initial fund data with fund designation flag set to ‘C’ (Commercial Fund) when premium is accepted AIP may designate to Private Market Fund by resubmitting fund data with flag set to ‘P’

within two Federal workdays after the acceptance date of premium

(fund lockdown date). Example: premium accepted by eDAS/UCM Monday, lockdown will be Wednesday at midnight. If change flag equals 3, AIP must submit a request to Reinsurance Services Division (RSD) for approval. Fund AGR/AGR-L - The Fund section will be used to designate for the crop/plan Residual,. If a crop/plan was established into the Assigned Risk Fund the crop/plan can be timely removed and automatically established in the Commercial Fund.

The PAYMENT section (AGR/AGR-L, Exhibit 124) is used to record/report payments by producers for each policy by the monthly transaction cutoff date for the calendar month following the billing Payment date. Only one payment section per payment type code will be accepted for the policy. When reporting state subsidy use payment type code “4”. The Crop Policy section (Livestock, Exhibit 119 and AGR/AGR-L, Exhibit 123) is used to record/report the crop, insurance plan, and location county.

A policy cannot be active for both livestock products (LGM and LRP)

2nd Draft February 23, 2010 RMA-Appendix III 33

for a commodity at the same time within the same reinsurance year and location state. The existing policy can be cancelled if the coverage period has ended and the producer wants to insure another livestock product. Example: Product 1 was purchased for 90 days of coverage. At the end of that coverage the insured can cancel product 1 and

purchase product 2 during the next sales period.

Crop Policy For AGR/AGR-L, only 1 crop policy per Tax-ID (Entity) nationwide is allowed. Cannot have both insurance plans. The PREMIUM section (Livestock, Exhibit 135-0 & 140-0 and AGR/AGR-L, Exhibit 151-0) is used to record/report premium and liability information.

Insurance plan will determine the availability of eDAS and type of data

necessary in submission of premium. Premium is dependent on eDAS

acceptance of agent, entity, SBI (if applicable) and reviewer (if applicable) and the acceptance by the UCM. Coverage may not be available if the UCM has been expended. When premium is accepted eDAS will assign an approval number. If change flag equals 3, AIP must submit a request to Reinsurance Services Division (RSD) for approval.

For AGR/AGR-L, all detail information must be submitted each time any information is updated. The detail section contains information Premium that’s used in the validation and determination of premium. The DISBURSEMENT section (AGR/AGR-L, Exhibit 150) is used to Disbursement record/report disbursement information The INDEMNITY section (Livestock, Exhibit 135-2 & 140-2) and AGR/AGR-L, Exhibit 151-2) is used to record/report indemnity information. Indemnity is dependent on eDAS acceptance of agent, entity, SBI (if applicable), premium, reviewer (if applicable), and adjuster (if applicable). AIP is responsible for determining if an

indemnity is due and submission of data to eDAS for validation and

Indemnity acceptance. If change flag equals 3, AIP must submit a request to Reinsurance Services Division (RSD) for approval.

5. Following is an example of the XML_TEMPLATE for AGR/AGR-L:

2nd Draft February 23, 2010 RMA-Appendix III 34

2nd Draft February 23, 2010 RMA-Appendix III 35

D. Example of XML_TEMPLATE for Livestock:

2nd Draft February 23, 2010 RMA-Appendix III 36

2nd Draft February 23, 2010 RMA-Appendix III 37

E. Example of XML error layout:

F. Example of XML warning layout:

G. Example of XML Disbursement with process flag 1, 2, or 3 where an Indemnity already exists. Automatic deletion of Indemnity is required:

//Automatic deletion of Indemnity by eDAS

//Any other XML sent by company for this policy

H. Example of XML Indemnity with process flag of 3 (delete) causing Disbursements to be set to warnings automatically by eDAS.

2nd Draft February 23, 2010 RMA-Appendix III 38

//eDAS automatically does an update on Disbursement(s) and sets them to have warnings.

I. Example of XML message layout:

C. Ineligible Tracking System Processing Considerations

The PASS edit process accesses the ineligible tracking system database to validate policy records. PASS will reject eligible crop insurance contracts for a producer if the applicable sales closing date/termination date for the crop in the county falls during a period of ineligibility. Consider the following examples:

Single Sales Closing Date Prior Year Term Date Producer  Producer Became Policy rejects for the crop is the same as the Reported as Ineligible on 3/15/2010 since the sales closing date is Sales Closing Date Ineligible  A policy is submitted greater than or equal to the for a crop with sales date of the ineligibility. If closing date and prior the sales closing date had year termination date of been prior to the date of 3/15/2010 ineligibility, the crop policy would have been accepted. Prior Year Term Date Producer  Producer became The policy would be rejected is the same as the Reported as ineligible on 9/30/2009 for that crop since the sales Sales Closing Date Ineligible  Producer became closing date falls within the and has eligible on 3/16/2010 period of ineligibility. If the Become  A policy is submitted eligible date had been Eligible for a crop with a sales 3/15/2010, the crop policy closing date and prior would have been accepted. year term date of 3/15/2010

Prior Year Term Date Producer  Producer became The policies for Crop 1 and is the same as the with more ineligible on Crop 3 would be rejected Sales Closing Date than one 9/30/2009 since the sales closing dates period of  Producer became fall within the period of ineligibility eligible on ineligibility. 2nd Draft February 23, 2010 RMA-Appendix III 39

12/01/2009  Producer became The policy for Crop 2 would ineligible on be accepted since the sales 2/01/2010 closing date for that crop  Producer became falls within a period of time eligible on 3/15/2010 that the producer is eligible.  A policy is submitted with 3 crops: o Crop 1 – SCD = 10/31/2009 o Crop 2 – SCD = 1/31/2010 o Crop 3 – SCD = 2/28/2010 Prior Year Term Date  Producer became ineligible on The policy would be rejected is later than the Sales 4/15/2010 for that crop since the prior Closing Date  A policy is submitted for a crop with year termination date is the sales closing date of 3/15/2010 and same as the ineligible date. prior year termination date of The prior year termination 4/15/2010 date is used to determine eligibility in this situation because the producer would unfairly be allowed a policy for the next crop year if the sales closing date had been used. If the sales closing date had been used to determine eligibility, the producer would have no penalty for not paying for the prior year policy premium/CAT fees by the term date. Multiple Sales Closing Dates Producer New Eligible crop ineligible on first Producer eligible by Record for second SCD will insurance contract SCD second SCD be accepted Continuing eligible Producer Record will be rejected because producer must be crop insurance ineligible on 1st eligible on the 1st sales closing date to be eligible for contract SCD the crop for the submitted year Agent Eligibility  Agent is Reported  Eligible crop Insurance  Agent is eligible to write Contract 1 as Ineligible on Contract 1 – ll Record because the agent signature date is 9/10/2010 agent signature date = prior to the ineligible date.  Agent becomes 9/8/2010  Agent is ineligible to write Contract eligible on  Eligible Crop Insurance 2 because the agent signature date 9/10/2015 Contract 2 – 11 Record falls between the agent’s eligible agent signature date = and ineligible dates. The 11 record

2nd Draft February 23, 2010 RMA-Appendix III 40

9/14/2010 would reject. Loss Adjuster Eligibility  Loss adjuster  Loss 1 – Type 21 record  The loss adjuster is ineligible for becomes loss adjuster signature Loss 1 because the loss adjuster ineligible on date = 12/08/2010 signature date falls between the loss 12/3/2010  Loss 2 – Type 21 record adjuster’s ineligible and eligible  Loss adjuster loss adjuster signature dates. becomes eligible date = 11/30/2010  The loss adjuster is eligible for Loss on 12/3/2014 2 because the loss adjuster signature date is before the loss adjuster became ineligible.

D. Duplicate Edit Processing Considerations

1. The duplicate edit process is designed to reject duplicate eligible crop insurance contracts or identify possible duplicate eligible crop insurance contracts reported to RMA. The process determines the ownership of an eligible crop insurance contract and is based on the definition of a duplicate eligible crop insurance contract and a possible duplicate eligible crop insurance contract key. Duplicate or possible duplicate eligible crop insurance contracts are identified by PASS errors and are reported to companies weekly.

2. In the case of Duplicate eligible crop insurance contracts (i.e. same tax id number, tax id type, entity type, location state, location county, crop code, and type code (grapes only crop code 0052 and 0053)), PASS will determine the owner IP based on signature date and transferred cancellation fields on the Type 14 record.

3. If any of the duplicate eligible crop insurance contracts are indicated as a ‘Transfer and Cancellation’ eligible crop insurance contract on the 14 record, the Dup process will use the earliest signature date for the current sales period to determine ownership. The ‘sales period’ starts the day following the earliest sales closing date for the previous crop year and continues through the latest sales closing date for the current crop year. If none of the duplicate eligible crop insurance contracts are indicated as being a ‘Transfer and Cancellation’ eligible crop insurance contract, then ownership will be determined by earliest signature date without regard to the sales period.

4. Companies will be notified of Duplicate eligible crop insurance contracts on a batch transmission basis through the PASS edit process. In addition, on the first business day following the transaction cutoff date for weekly data reporting, companies will be provided a summary report identifying the count of duplicate policies with another AIP and the number of ownership eligible crop insurance contracts where another AIP has a duplicate eligible crop insurance contract.

5. After the weekly cutoff, the RORYOWN and RORYDUP reports will be generated from the duplicate eligible crop insurance contract information captured duringPASS processing. For RY 2011 and succeeding years, RMA will removePASS determined duplicate crop/county eligible crop insurance contract records (Type 14 records), in the RORYDUP report, from the Dup process and the Policy databases.

2nd Draft February 23, 2010 RMA-Appendix III 41

6. Once this weekend process is complete, the PASS determined 'owner' eligible crop insurance contract will remain in the PASS System and should not receive a duplicate error when re- transmitted. AIPs must take action to ensure that duplicate eligible crop insurance contracts listed in the RORYDUP report are NOT re-transmitted toPASS.

E. Common Land Unit Validations

RMA should clearly document their proposed validation of common land unit data, including distribution of the CLU shape files, validations performed relative to the distribution of those files, and any other process that could impact the specific edits being performed on the Type 27 CLU data fields. RMA cannot enforce any minimum CLU reporting requirement for the 2011 reinsurance year if the specific procedures necessary to support those validations are not issued in the CIH by 9/1/2010 and the LAM by 12/31/2010.

14 PASS Reports ______

PASS provides AIPs the following reports, transmission data files and reference files to assist error resolution and status.

Reports Summary Report Provides transactional, financial and error statistics on each transmission. The (.sum) report identifies the input file name, the run date and time, and the received date and time. The transactional statistical section provides counts by record type of: submitted; accepted; rejected; and suspended records. The financial statistical section provides the associated dollar amount of: submitted, (if a type 97 record is included in the transmission); accepted; rejected; and suspended records. The error statistics sections lists the error code and message received and the number of records in error. Premium and Loss Provides by crop, the dollar amount of premium and indemnity rejected by error code Error Report (.rp2) combination. The number of records and eligible crop insurance contracts are also listed. Error Report (.rpt) A formatted report by eligible crop insurance contract listing the record(s) and field(s in error. It identifies the data in error and what is expected in the field. Transmission Files Rejected File (.rej) Contains the records rejected with errors by PASS with an additional 50 bytes of data used internally by PASS. Error File (.err) Lists the record key with an error, the error code, data in error and the expected data Accepted File (.acp) Contains the records accepted by PASS with an additional 50 bytes of data used internally. AIPS may request this file be placed in their directory. Accepted Fund Designation File Contains the Type 9 records accepted by PASS with an additional 50 bytes of data (.fun) used internally. This file is provided to AIPs confirming fund designation by RMA Weekly Reports/Files Duplicate Report Contain eligible crop insurance contracts identified by PASS as being a duplicate. Files Issued on the IPSERVER every Monday at 12:00 p.m. IPRYSUM.TXT Report file showing duplicate policy and owner policy summary information for IP/RY IPRYDUP.TXT Data file containing duplicate policy identification along with owner policy 2nd Draft February 23, 2010 RMA-Appendix III 42

information for IP/RY IPRYOWN.TXT Data file containing owner policy identification along with duplicate policy information for IP/RY Mini-40 Reports Generated to the IP SERVER every Monday at 12:00 p.m. and on Tuesday evening a 6:00 p.m. Lists of premium and indemnity by policy, with totals accepted by PASS the previous week. Written Agreement Generated to the IP SERVER every Monday at 12:00 p.m. Each IP will be provided Reports with two files. A file for their own written agreement policy data that has been accepted through PASS. The second file for the written agreements offered by the RMA Regional Office for that IP. Files are made available to the IPs via the “ip server” and to the RO’s via the RMKC00a system. The file naming conventions are “ipyywaip.txt” (IP data) and “ipyywaro.txt” (RO data) Reference Files Insurance Validation files used by PASS. These files will be updated on the following Control frequency (does this vary by ICE file and should be referenced for each ICE Element (ICE) file?). Files will be released to AIPs on the following frequency (does this Files vary by ICE file and should be referenced for each ICE file?). AIPs will be notified of updates to the ICE files as follows (this process should be uniform for all ICE files, and be patterned along RMA’s current ADM release process). Each field (or combination of fields) that is validated by an ICE file will be annotated with the applicable ICE file in the Rules column of each applicable PASS record type. A complete description of the content of the ICE files follows: Max Yield Text Contains maximum yield values used by PASS for edits for the AIPs use. Generated Files (isn’t this an to the Miscellaneous Files directory on the ftp server on Monday morning and when ICE file?) the files are updated during the week. Contains the highest yield, corresponding maximum warning yield level (beyond which a yield must be reviewed), the maximum yield allowed and any override value documented and approved by PDD for each insurable State, Crop, County, Type, and Practice. Default values are provided at the State and Crop level. Error Message Text Contain the associated text message for the numeric PASS errors. These files can be Files (isn’t this an found in the Miscellaneous Files directory by RY. ICE file?) Land Location File Consists of Public Land Survey identifiers indexed by state and county. This is a cop (isn’t this an ICE of the file used to validate PLSS identifiers submitted by AIPs on the type 11 and 27 file?) records and on exhibits 135 and 140. Data is derived from PLSS spatial data (i.e., GI format) collected and maintained by RMA. Modifications are made (a) when queries from AIPs are validated and (b) when newer or more complete PLSS spatial data is acquired for a specific state. ICE D00001 Contains ??? values used by PASS for edits. ICE D00002 … Common Land Contains spacial data for the polygons of Common Land Unit areas designated Unit File by a generic CLU Global Unique Identifier (GUID). Files will be released quarterly.

15 – 20 Reserved

2nd Draft February 23, 2010 RMA-Appendix III 43

Part 3 Accounting

21 Accounting Processing Considerations______

A. All reports submitted for reimbursement of any funds payable by FCIC under the SRA must be certified by an authorized officer or authorized employee of the Company named in Section IV(a) of Appendix II that the information in the report is correct and accurate. Certifications may be provided either on hard copy reports or in an electronic method (e.g., signed PDF document submitted via e-mail for 2011 and prior reinsurance years, or electronically via ITM requirements beginning with the 2012 reinsurance year)

B. Timing of Monthly Payments

1. RMA will generate and remit payments due to the AIP in accordance with the SRA, based on data validated in PASS, no later than the first banking day after the 14th calendar day following RMA’s receipt of both the detailed reinsurance contract data file, and the certified (signed) hard copy or electronic monthly/annual operation report.

a. FCIC will pay the net amount due from FCIC to the AIP as reflected in the FCIC- generated report, reduced or increased where appropriate, for any differences between the reports submitted and the data validated.

i. FCIC will net together for payment purposes, multiple reinsurance year reports ii. FCIC will make payments to AIPs via Electronic Funds Transfer (EFT) through the U.S. Treasury iii. FCIC will pay interest in accordance with the interest provisions of the Contract Disputes At (41 U.S.C. 601 et seq.) on any payment which is not sent to the AIP by the dates provided by the SRA.

b. RMA generated reports will be regenerated to contain AIP entries on the Premium Due and Premium Due Without Payments Worksheets upon receipt of the certified report/worksheet from the company if received by the due date for monthly reporting.

B. Reimbursement of Losses

1. For any AIP that elects to use escrow funding: FCIC will fund the escrow account within three (3) business days after the loss transactions are accepted in FCIC’S Escrow System. Beginning with the October monthly settlement report for the reinsurance year (e.g., October 2010 will be the first accounting report for the 2011 reinsurance year), the escrow funded amount, as of the monthly transaction cutoff date will be reconciled with the escrow loss data accepted on the monthly or annual report. Any escrow requests which have not been funded as of the monthly transaction cutoff date will not be included in that month's report. Any difference in the escrow funded amount and the losses validated by RMA will be refunded monthly by the AIP to FCIC.

2. AIPs may also report loss data through PASS prior to check issuance (for validation purposes), in accordance with instructions on the Type 20 record descriptor contained in this Appendix.

2nd Draft February 23, 2010 RMA-Appendix III 44

a. Losses reported in this manner will not be funded Through Escrow, and will not appear on the Monthly/Annual Operations Report.

b. To obtain escrow funding, AIPs must re-submit loss data consistent with the Escrow Agreement and instructions for the Type 20 record descriptor contained in this Appendix.

3. Any AIP who elects not to utilize Escrow Funding will be reimbursed on the Monthly/Annual Operations Report for paid losses which have been validated and accepted in PASS as of the monthly transaction cutoff date. Any loss will be considered paid by the AIP, when the instrument or document issued as payment has cleared the AIP’s bank account.

E. Administrative Expense Reimbursement

1. The FCIC will pay the AIP an A&O Subsidy as specified in the SRA beginning with the October Monthly Operations report for the reinsurance year for the 2011 reinsurance year, and beginning with the October monthly settlement report following the end of the reinsurance year for 2012 and succeeding reinsurance years.

a. All A&O Subsidy amounts paid are subject to correction at any time, and by the Monthly/Annual Operations Report following detection of the error.

b. Any rejected eligible crop insurance contract due solely to an identified PASS edit error, will be fully compensated on that month’s accounting report.

2. The A&O Subsidy applicable to the eligible crop insurance contract will be reduced whenever the identified required LRR data has not been timely and accurately provided to RMA or such information is revised after the LRR Transaction Cutoff Date.

a. If the required LRR data first passes acceptance edits after the LRR Transaction Cutoff Date or is revised after the LRR Transaction Cutoff Date, the A&O Subsidy will be reduced as defined in Section IV.b.(7)(A) of the SRA

See Exhibit 5-1.

4. Reimbursement for CAT Loss Adjustment Expense will be calculated in accordance with the SRA, and will be included on the Monthly/Annual Operations Reports beginning with the same monthly settlement report that contains initial A&O subsidy payments for a specific reinsurance year (see C.1. above).

5. Any payment received under Section IV.h. of the SRA, must be paid by the last business day of the month for the Monthly/Annual Operations Report cutoff following RMA’s notification to the AIP of the amount due.

F. Interest Calculations

1. The AIP will be charged interest in the following cases: Late payments of the balance due on Monthly/Annual Operations Reports, overpayment by FCIC of losses or expense reimbursements, 2nd Draft February 23, 2010 RMA-Appendix III 45

increases in the Premium Due Without Payments Report, and on Premium Variations and on uncollected premiums not paid which are reported on the Premium Due Worksheet. The AIP will pay FCIC interest at the annual fixed rate of 15% (See Exhibit 6).

2. If the balance due FCIC on the Monthly/Annual Operations Report is not received by the last banking day of the month, via electronic transfer to FCIC’s account at Treasury, interest will attach from the day following the last banking day of the month and will be charged through the day funds are received by Treasury.

3. The AIP will repay, with interest, any amount paid to the AIP by FCIC which is subsequently determined by FCIC or the AIP, to have been not due to the AIP, such as overpaid indemnities or excessive expense reimbursements. Interest begins accruing based on the date of the Final Determination letter. (See Interest Calculation Exhibit 1-12 Example 2).

4. Increases in premium amounts for an eligible crop contract which occur after a billing date are reported on the Premium Due Without Payments Report. Interest on these increased amounts will accrue from the first of the month following the AIP Payment Date, and will accrue through the end of the month for the monthly report on which the increase was included (See Exhibit 6-2 Example 3).

5. The AIP will pay interest on any uncollected premiums if the uncollected premiums are not paid to FCIC by the month following the month of the billing date. Interest will attach on any uncollected premiums from the first of the month following the month of the billing date. A full month’s interest will be charged for any month or portion of a month that the uncollected premiums are not paid to FCIC (See Exhibits 6-4 and 6-5).

6. All payments are subject to post audit by FCIC.

G. AIP Accounting

1. All accounting reports must be downloaded by the AIPs via telecommunications processing. These reports will be made available on a monthly basis. AIPs may query the telecommunications facility any time to see if the accounting reports are ready to be downloaded.

2. AIPs must monitor the escrow account balance and maintain sufficient collateral coverage to insure timely funding of all loss data. If there is a shortfall of funds in the escrow account, it is the AIPs responsibility to deposit funds to cover any shortages.

3. Monthly Operations Reports are required to be submitted through annual settlement time. Annual settlement Operations Reports must continue to be submitted for any month that revised data are submitted. Court action, compliance, audit or investigative related finds by the Government or the AIP after the October Accounting cut-off following 5 years from the beginning of the reinsurance year must be reported to RMA and will be processed manually. Operations Reports must be received by RMA by the last banking day of each month corresponding to the transaction cut-off date.

4. Uncollected premiums for each billing date must be reported by the AIP by the transaction cutoff date for the Monthly Operations Report following the month of the billing date. Interest will be 2nd Draft February 23, 2010 RMA-Appendix III 46

charged on all uncollected premiums not paid to FCIC by the AIP payment date from the first of the month following the billing date at the rate of 15% per annum. The AIP must enter data into the appropriate columns on the Premium Due Worksheet to indicate their intent whether to pay uncollected premiums and return a signed copy of the report/worksheet along with the report, to be received by RMA by the last business day of the applicable monthly transaction cutoff date.

5. When producer premiums are collected by the AIP before the billing date, any premium collected during a calendar month must be reported on the Monthly Operations Report submitted during the next calendar month after the billing date and payment made by the AIP Payment Date. All premiums not collected must be paid to FCIC at annual settlement whether or not they are collected from insured.

6. For the purpose of collecting CAT fees and accrued interest from insureds, there are responsibilities that must be undertaken by the AIP and FCIC. These responsibilities shall be in accordance with 7CFR 457.8, which states “Interest will accrue at a rate of 1.25 percent simple interest per calendar month, or any portion thereof, on any unpaid amount owed to us or on any unpaid administrative fees owed to FCIC.”

a. AIPs are responsible for calculating and collecting interest on CAT fees in accordance with 7 CFR 457.8 beginning 30 days after the premium billing date until the crop termination date.

b. AIPs shall transmit a 60 and 65 record through the Ineligible Tracking System for the principle amount only, for unpaid CAT fees within 7 to 21 days after the crop termination date. At this time these fees become Federal debt and all collection efforts on the part of the AIP shall cease.

c. AIPs are responsible for any questions that an insured may have regarding the validity of this debt or payment made prior to the crop termination date. After the crop termination date, all questions regarding amounts due including interest accrued, shall be referred to RMA.

i. Records regarding an unsatisfied debt pertaining to a CAT policy must be retained indefinitely in accordance with Section IV.G.6. of the SRA.

ii. If an AIP receives payment for a Federal debt, they are to transmit a type 12 record with a payment type code of “02” for the entire amount received within 7 days of the receipt of the payment. (Timing is critical since the debt may be referred by RMA to Treasury for cross servicing and any amounts due the insured from any Federal agency will be reduced by the Federal debt that includes CAT fees and accrued interest.

iii. RMA shall calculate interest in accordance with 7 CFR 457.8 on any unpaid CAT fees reported to RMA beginning on the termination date until the debt is satisfied.

iv. RMA will answer any questions regarding the amount of the Federal debt or any payments made after crop termination since subsequent interest may have accrued.

v. RMA shall take over all collection efforts of unpaid CAT fees upon termination date and the submission of the type 60 and 65 records.

2nd Draft February 23, 2010 RMA-Appendix III 47

vi. RMA may refer the Federal debt to Treasury for cross servicing.

7. Escrow funding and reported loss data will be reconciled on each monthly and annual operations report.

8. Any aggregate underwriting loss of the AIP will be paid to FCIC by the AIP with each monthly operations report as calculated by the reinsurance run report generated by RMA. Any underwriting gain due the AIP will be paid at annual settlement.

9. The AIP must enter data into the appropriate columns on the Premium Due Without Payment Worksheet to indicate any increase in premium and return a signed copy of the report/worksheet along with the monthly operations report, which must be received by RMA by the last business day of the month corresponding to the transaction cutoff date (See Exhibit 6-3).

a. The insured's premium due is calculated by subtracting the paids and loss-credits from the producer premium amount for each policy and billing date. The total due is then summarized by billing date.

10. The new amount due FCIC as reflected in the Monthly or Annual Operations Report, must be paid by EFT by the later of, 10 calendar days of being issued by RMA or last business day of each month corresponding to the transaction cutoff date for that month. When payment is submitted to FCIC based on a report generated by the AIP or its reporting agent and supporting data is subsequently rejected, the AIP must remit the difference by EFT within seven (7) calendar days of the date the AIP was notified of the discrepancies. In instances where an AIP generated report differs from RMA generated Operations Reports, payments will be based on the RMA Operations Reports.

11. All payments due to FCIC must be deposited directly into the Corporation's account in the U.S. Treasury by EFT. An instruction guide for funds transfer deposit messages to the Treasury is provided in Exhibit 7. Information, such as agency codes, and beneficiary codes will be provided under separate cover.

12. Annual Operations Reports

a. A hard copy or electronic settlement report, called the Annual Operations Report (recap and worksheets), must be certified and received by RMA by the last business day of October following the end of the subsequent reinsurance year per SRA Section I. The report will follow the format as provided in Exhibit 1-4 of this Appendix. All reinsurance transactions for the year must be summarized and reported on the Annual Operations Report.

b. Corresponding data file transmissions for the Annual Operations Report must be successfully received in its entirety by the October monthly transaction cutoffs stated in 11.a above. The amount due either FCIC or the AIP will be calculated based on the PASS validation of the data, will be based on the RMA-generated Operations Report, and will follow the monthly reporting process.

c. The gain or loss of the AIP is calculated in the monthly Reinsurance Run Report 2nd Draft February 23, 2010 RMA-Appendix III 48

generated by RMA. Any underwriting gain will be paid on the Annual Operations Report. Underwriting loss will be calculated on the Monthly Operations Report. If the underwriting loss netted with any other amounts due results in a net amount due FCIC, payment must be received by EFT by the AIP Payment Date.

d. All discrepancies, including items appearing on the Overpaids and loss credits reported on the ADR003 and ADR 004 reports must be reconciled and eliminated from the reports prior to the last automated cycle of the reinsurance year as defined in Section 11.A.1.a. of this Appendix.

22 Accounting Reports______

RMA provides AIPs the following reports:

This report lists all policy record amounts that contain generated P/CR Memo P/CR Memo Reject amounts which were not posted. P/CR Memo amounts are rejected when the P/CR Report (Exhibit 1-10) Memo policy does not exist or when the P/CR Memo policy has zero premium. Reconciliation reports are generated in addition to the various error reports wheneve there are unusual circumstances concerning a policy or record type submitted. The purpose of these reports is to perform a verification or validation of data on RMA's database to the most current data received from the AIP. The AIP should research data appearing on the reconciliation reports and determine what action needs to be

taken to correct the discrepancies (i.e., delete, correct, in order to resubmit the

records correctly). The amount of negative financial impact to FCIC will be determined and deducted from the Monthly/Annual Operations Report. Following are the two reconciliation reports the AIP may receive:

Discrepancies of Premium by Policy Discrepancies of Losses by Policy

The Discrepancy reports, are generated when a policy record that has been submitte by an AIP does not agree with data accepted into the PASS. Reconciliation Reports (Exhibit 4)

RAS Summary Reports

The RAS generates summary reports based on detailed reinsured contract data submitted by the AIPs each month through PASS. Once data is received from AIPs electronically, the PASS processes the data through RMA edits/validations and RAS produces the summary reports. The reports are used to calculate the balance which is due the AIP or FCIC. The FCIC Detailed Policy Report shows detail policy-level information. It feeds information to the Operations Report which generates grand totals, and consists of the following:

The Premium grand total is developed from the Premium Lines Record - Type 11 and 13, and is reported as summarized policy detail for all lines and all crops Premium associated with a policy. Premium is totaled by Crop Year. The Paid grand total is developed from the Payment Record - Type 12 (Payment 2nd Draft February 23, 2010 RMA-Appendix III 49

Type 00) and the RAS currently shows policy detail for the net paid amount. The paid amount should not include administrative fees and must be ≥ zero.

The net paid represents the premium collected by the AIP from the producer (insured). An overpaid amount may exist when a producer overpaid his premium.

Paid The Loss-Credit grand total is derived from the Loss Total Record Type 20, which consists of M-Memos and P-Credit Memos. M-Memos are premium amounts due (by producer) that have been deducted from a loss payment by the producer from losses received on the same policy. P-Credit Memos occur when premium due on another policy (in same reinsurance year) is designated with a

"P" in the Type 20 record which enables the amount to be deducted from a loss

payment on the policy incurring a loss. All other amounts designated in the "1st - 4th Total Amounts" on the Type 20 record appear as a single line item entitled "Loss Deductions (F, R, O)" on the Loss-Credit Operations Report. RAS will generate the designated ‘P-Credit Memos’ into the Loss-Credit column of the Monthly Operations Reports to eliminate out-of-balance conditions. The sum of each loss deduction code for a policy should never be less than zero. An overpaid amount may exist when an excessive amount of an insured’s loss was deducted from his policy. The Subsidy grand total is the Total Premium minus the Producer Premium Subsidy submitted on the Premium Lines Record - Type 11. The Loss grand total is derived from the Loss Line Record - Type 21 or 22, which consists of all losses reported by the AIP. The losses are reimbursed to the AIP through the automated escrow process. On a monthly/annual basis, the total of Total Losses will be compared to the sum of "Loss-cr., Escrow, and Drafts" and "Loss Deductions (F, R, O)" and FCIC will pay the lesser amount. RMA will also

adjust the amount of "Drafts Issued (Escrow)" included in the Monthly/Annual

Summary Report on the line for "Loss-CR, Escrow and Drafts" to the lesser amoun of "Previous Escrow Funded" or "Less Drafts Issued (Escrow)." This will avoid an potential overpayments by FCIC on the Monthly/Annual Summary Reports. Losses Cost Share The total AGR or AGR-L Cost Share reported as additional subsidy.

Monthly Operations Report (Exhibit 1)

This report shows the grand totals of all insurance policies carried by each AIP and provides the balance due the AIP or FCIC. The remainder of the entries on the Operations Report are calculated from entries which the AIP has made on the Premium Due and Premium Due Without Payments Worksheets or derived from other reports generated by RAS. Following is a description of each line item on the report. All line items represent cumulative totals.

Net Expense This item represents administrative expense reimbursement based on a percentage Reimbursement of total premium on all non-CAT crop policies. This item also includes the CAT Adjustment loss adjustment expense based on the total CAT premium. The net installment adjustment is supported by the FCIC Installment report. Exhibit 1-2. 2nd Draft February 23, 2010 RMA-Appendix III 50

Net Contingency Fund Sales (LRR) Reduction, Late Filed Acreage Reduction, Excess Premium Penalty, Compliance Penalty and Agreement Termination Penalty Less Premium Collected Insured's premium collected by the AIP. Escrow is the lesser of the “previous Escrow Funded” or the amount of “Drafts Issued (Escrow)” (See Items u, v) Escrow and Drafts Drafts represents the amount paid by the AIP for losses paid to producers if the AIP is not participating in Escrow. It is determined from Type 20 records which contain a “D” for drafts. (F, R, O) - Amounts reimbursed by the FCIC to the AIP for administrative fees (F), recovery of previous or subsequent year premium (R), or other (O) to include Loss Deductions interest deduction amounts, which the AIP deducted from their loss reimbursement request AIP Previous The cumulative amount of other payments received by FCIC via electronic transfer Payment to Treasury by the AIP. FCIC Interest Paid The cumulative total of all interest paid to AIPs by FCIC for late payments, etc. Adjustment due Amount of reimbursement by FCIC to the company for litigation or other approved Company expenses. This amount has to be reviewed and approved by RSD Administrative Fee Net fee due FCIC supported by supplemental administrative fee reports (Exhibit 1-5). Adjustment Reduction Due to Reconciliation Report Differences Net reduction amount based on unreconciled differences from reconciliation reports that have a negative financial impact to FCIC. FCIC Interest/Penalty Represents interest or penalty assessed against the AIP Adjustment Due FCIC Any overpayments that FCIC has made to the AIP FCIC Previous Cumulative amount of all payments made to the AIP by FCIC for the current reinsurance Payment year Escrow Funded Represents the escrow amount the AIP has been funded. The total is summed up to the current cutoff date of the Monthly Operations Report. Paid Previous Worksheets Amounts paid to FCIC on previous worksheets Represents the loss taken from the "Reinsurance Run" report. This amount is a calculation of the AIP’s loss based on entries made in the Appendix II, together wit the Standard Reinsurance Agreement applicable to each respective Reinsurance Underwriting Loss Year. The report is a summation of reinsured data displayed the fund, state and national (grand total) levels. Subtotal Total of lines preceding this line from the FCIC Due/Paid Column on the report Total from Current Worksheet Represents the combined total from the Premium Due and Premium Due Without Payment Worksheets Balance Due AIP (+), FCIC (-) Total balance due the AIP or FCIC Represents the amount of escrow the AIP has been funded, and is reported here Previous Escrow when FCIC issues the funds to the AIP. The total is summed up to the current cuto 2nd Draft February 23, 2010 RMA-Appendix III 51

Funded date of the Monthly Operations Report Less Drafts Issued (Escrow) Represents the amount of checks issued to producers for losses, and is accumulated from an “E” that was validated and accepted in PASS from the type 20 record Escrow Balance Represents the difference between the “Previous Escrow Funded” line and the “Less Drafts Issued (Escrow)” line

Annual Operations Report (Exhibit 1-4)

This report shows the grand totals of all insurance policies carried by each AIP and provides the balance due the AIP or FCIC. The following provides a description of how each line item on the Annual Operations Report is calculated. All line items represent cumulative totals.

Represents administrative expense reimbursement based on a percentage of total premium on all non-CAT crop policies less the reduction for Late Reporting Expense Reductions. The CAT loss adjustment expense which is based on the total CAT Reimbursement premium. The net installment adjustment is supported by the FCIC Installment report Adjustment Net ) Late Reporting Reduction, Late Filed Acreage Reduction, Excess Premium Penalty, Contingency Compliance Penalty and Agreement Termination Penalty Fund Less Premium Collected Total premium whether or not collected by the AIP

Loss-CR, Escrow is the lesser of the “Previous Escrow Funded” or the amount of “Drafts Issued Escrow and (Escrow)” (see items w, x). Drafts Loss Credits (M, P) Amounts reimbursed by the FCIC to the AIP for administrative fees (F), recovery of previous Loss or subsequent year premium ®, or other “O” to include interest deduction amounts, which the Deductions (F, AIP deducted from their loss reimbursement request. R, O) Subsidy Cumulative amount of all risk subsidy Additional Subsidy AIP Previous Cumulative amount of other payments received by FCIC via electronic transfer to the Treasury Payment by the AIP FCIC Interest Paid Cumulative total of all interest paid to AIPs by FCIC for late payments, et. Adjustments Amount of reimbursement by FCIC to the company for litigation or other approved expense. Due Company This amount has to be reviewed and approved by RSD Net Administrative Fee Adjustment Net fee due FCIC supported by supplemental administrative fee reports. Less Reduction Due to Reconciliation Report Net reduction amount based on unreconciled differences from reconciliation reports that have a Differences negative financial impact to FCIC FCIC Interest/Penalty Represents interest or penalty assessed against the AIP 2nd Draft February 23, 2010 RMA-Appendix III 52

Adjustments due FCIC Overpayments that FCIC has made to the AIP FCIC Previous Cumulative amount of all payments made to the AIP by FCIC for the current reinsurance year Payment Escrow Funded Represents the escrow amount the AIP has been funded Paid Previous Worksheets Cumulative interest from any worksheets Represents the gain/loss taken from the "Reinsurance Run" report. This amount is a calculation of the AIP’s gain/loss based on entries made in the Appendix II, together with the Standard Reinsurance Agreement applicable to each respective Reinsurance Underwriting Year. The report is a summation of reinsured data displayed at fund, state and national Gain/Loss (grand total) level Total of lines preceding this line from the FCIC Due/Paid Column of the operations report Subtotal Normally, this item represents the total from the Premium Due Without Payments Worksheet; Total from however, there is an exception for those companies which had deferred premium. For those Current companies, on the 1st annual report only, a Premium Due Worksheet calculating interest should Worksheet also be included in this total. Balance Due AIP (+) or FCIC (-) The total balance due the AIP or FCIC Represents the amount of escrow the AIP has been funded, and is reported here when FCIC Escrow Funded issues the funds to the AIP. The total is same as “p” above. Less Drafts Represents the amount of checks issued to producers for losses, and is accumulated from an Issued “E” validated and accepted in PASS from the Type 20 record (Escrow) Escrow Represents the difference between the “Escrow Funded” line and the “Less Drafts Issued Balance (Escrow)” line

RAS Summary Reports Adjusted for Livestock (Exhibit 9)

Summary reports are generated based on detailed reinsured contract data submitted by the AIPs each month through eDAS. The reports are used to calculate the balance which is due the AIP or FCIC.

Exhibit 9-2 shows detail policy-level information. It feeds information to the Livestock Operations Report, which generates grand totals, and will include the following for Livestock: The Premium Grand Total is developed from the Livestock Premium Data Identifier Livestock Detail Report and is reported as summarized policy detail for all lines associated with a policy. (LADR001) The Subsidy Grand Total is developed from the subsidy information submitted on the Livestock Premium Data Identifier and is reported as summarized policy detail for all lines associated with a policy The Loss Grand Total is derived from the livestock Indemnity Data Identifier, which consists of all losses reported by the AIP Monthly Livestock Exhibit 9-1 shows the grand totals of all insurance policies carried by each AIP and Operations Report provides the balance due the AIP or FCIC. Following is a description of how (LRCP001) Livestock will be reflected on the Monthly Livestock Operations Report Net A&O Subsidy Administrative and Operating Subsidy per the LPRA AIP Previous Payment Cumulative amount of other payments received by FCIC via electronic transfer to 2nd Draft February 23, 2010 RMA-Appendix III 53

Treasury by the AIP FCIC Interest Paid Cumulative total of all interest paid to AIPs by FCIC for late payments Adjustments due Litigation or other approved expense owed the AIP Company FCIC Previous Payment Cumulative total of all “Balance Due Company” amounts from all prior months reports FCIC Interest/Penalty Interest or Penalty assessed against the AIP Adjustments Due FCIC Offline (manual) corrections by the AIPs for overpaid indemnities Livestock Settlement Represents the livestock adjustments supported by the Livestock Settlement Report (Exhibit 9-3). Balance Due Company/FCIC Total balance due the AIP or FCIC

23 Escrow Reconciliation______

A. AIP Escrow Account Reconciliation must include the following information on a monthly basis: 1. Bank Reconciliation consisting of reinsured company’s name, address, bank account number, escrow account ending balance, total amounts for items in-transit, outstanding, interest, and overage/shortage. The bank reconciliation must be submitted in PDF format, certified and signed by a company officer or other company designated management official. The bank reconciliation must also be submitted in an Excel file format along with the other templates.

2. Data files in an Excel zip file format (templates attached) that provide detail for the bank reconciliation, in-transit, outstanding checks, overage/shortage, voided checks, cleared checks, check registers and interest checks.

3. Bank Statement of AIP’s Loss-Clearing Account submitted in PDF format.

4. Bank Statement of RMA’s Escrow Account submitted in PDF format.

B. The Excel zip file that is submitted to RMA must include the following eight tabs:

1. Bank Reconciliation – AIP’s must provide a bank reconciliation that presents the balance per statement, escrow request in-transit totals listed by reinsurance year, total debits, outstanding checks total, interest payable to FCIC by month, total credits, and overage/shortage total.

2. In-transit – AIP’s must provide a list of checks issued, but awaiting deposit of funds from RMA.

3. Outstanding checks – AIP’s must provide a list of checks that have been issued, but have not been presented for payment. AIP’s must monitor their list of outstanding checks for stale-dated checks over one year and follow the procedures stated on the Informational Memorandum dated February 13, 2007, for processing checks over one year old. If an action has been taken to resolve a stale check, make a note on the template.

4. Overage/shortage – AIP’s must provide a list, review, and resolve all items listed as overage/shortage on a monthly basis. The company will have 2 banking cycles to reconcile and resolve any item listed as an overage or a shortage on the escrow reconciliation. AIP’s must 2nd Draft February 23, 2010 RMA-Appendix III 54

provide a brief explanation of all items listed on the overage/shortage report. Any unsettled items will be resolved with RMA and the AIP.

5. Voided checks – AIP’s must provide a list of checks that were voided for the month of the reconciliation.

6. Cleared checks – AIP’s must provide a list of checks that have cleared the loss clearing account for the month of the reconciliation.

7. Check register – AIP’s must provide a list of checks that were issued for the month of the reconciliation.

8. Interest checks - Remit interest checks on a monthly basis for interest amounts exceeding $10.00.  Interest accrued under $10 should wait until interest accrued exceeds $10.00 before sending to RMA. The total for each month must be provided on the interest tab.  Outstanding interest must be submitted on a yearly basis with the August reconciliation, even if the $10.00 threshold is not met.

C. The PDF zip file that is submitted to RMA must include the following data:

1. Bank Statement of AIP’s Loss-Clearing Account.

2. Bank Statement of RMA’s Escrow Account.

3. Bank Reconciliation certified and signed by a company officer or other company designated management official.

D. All documents must be submitted electronically. 1. A naming convention consisting of the approved insurance provider code, BNKREC, calendar year, calendar month, underscore, number one (if you have more than one account, you will used number two for the second account) followed by .zip. If you have more than one account, RMA will designate which account is number one and which account is number 2. Example: XXBNKREC0907_1.ZIP (XXcompany, Bank Reconciliation, 2009, July, account 1).

2. Template formats provided on the attached sample reconciliation must be followed when submitting the escrow bank reconciliation.

3. Connect to the kcsn204.fcic.usda.gov.You will put your files here. When the process runs to collect the input file(s), it will then move he file from your home directory, perform a few tests on it and then it will put a copy of it in both the correct directory on the rmkc00a and in the correct upload directory on the kcsn204.

E. Failure to follow above procedures will result in RMA initiating a series of notification letters from RMA to the AIPs. 1. The first letter notifying the AIP accounting staff of the issue.

2nd Draft February 23, 2010 RMA-Appendix III 55

2. The second letter will be notification to AIP management.

3. The third letter will result in a notification letter to RSD for appropriate sanctions.  Discuss closing the current account and establishing a new account.

F. Available tools: 1. RMA is providing a daily and weekly escrow file to AIP’s on the RO Server. These files can be used to assist AIP’s in their reconciliation process.

2. When using the daily file, be aware that the information on the file will reflect the information that has been submitted to RMA. The raw data file may reflect duplication due to voided and reissued checks being submitted to RMA for a particular claim. One remedy to this situation is deleting the claim on one day and resubmitting correct draft numbers for the following day.

24 Application of Paids and Loss Credits______

The application of paids and loss-credits is best demonstrated with the following examples:

A. The Loss Credit must initially be applied to the Policy and crop with the associated Claim

a) First - Unpaid Finance Charge for the crop (i.e. Interest), then

b) Unpaid Administrative Fee for the crop, then

c) Unpaid Premium for the crop

B. After the Loss Credit has been applied to the Policy and Crop with the associated Claim then proceed in the following manner:

1. Apply to the same policy, any crop, starting with the earliest Premium Bill date –

a. First - Unpaid Finance Charge (i.e. Interest) , then (Note: if multiple crops have the same bill date, apply to interest on all crops before proceeding)

b. Unpaid Administrative Fee, then (Note: if multiple crops have the same bill date, apply to administrative Fee on all crops before proceeding)

c. Unpaid Premium

C. After the Loss Credit has been applied to the same Policy and all Billed crops then it can be applied in following manner:

2nd Draft February 23, 2010 RMA-Appendix III 56

1. Apply to any related policy, any crop, starting with the earliest Premium Billed date –

a. Unpaid Finance charge (i.e. Interest)

b. Unpaid Bill Administrative Fee

c. Unpaid Bill Premium

Georgia Policy Example Below:

Example #1 07/15/09 - $180.00 Loss on Policy # 1 Wheat

Policy 1 – Wheat Policy 1 – Oats Policy 2 – Wheat Policy 3 - Corn Unpaid Interest Unpaid Fees 30.00 30.00 30.00 30.00 Unpaid Premium 100.00 120.00 165.00 230.00 Bill Date 7/1/2009 7/1/2009 7/1/2009 10/1/2009

1. Apply $30 to fees on Policy #1-Wheat, and $100 to Premium on Policy #1-Wheat 2. Apply the remaining Loss Credit to Policy #1-Oats – $30 Fees, and $20 to Premium

Example #2 09/15/09 - $600.00 Loss on Policy # 1-Wheat

Policy 1 – Wheat Policy 2- Oats Policy 2 – Wheat Policy 3 – Corn Unpaid Interest 3.25 3.75 4.88 - Unpaid Fees 30.00 30.00 30.00 30.00 Unpaid Premium 100.00 120.00 165.00 230.00 Bill Date 7/1/2009 7/1/2009 7/1/2009 10/1/2009

1. Apply $3.25 to interest on Policy #1-Wheat, $30 to fees on Policy #1-Wheat, and $100 to Premium on Policy #1-Wheat 2. Apply the remaining Loss Credit to Policy #2-Oats – $3.75 Interest, and Policy #2 – Wheat - $4.88 Interest (Note: if multiple crops have the same bill date, apply to interest on all crops before proceeding) 3. Apply the remaining Loss Credit to Policy #2--Oats - $30 Fee, and Policy #2 – Wheat $30 Fee (Note: if multiple crops have the same bill date, apply to administrative fee on all crops before proceeding) 4. Apply the remaining Loss Credit to Policy #2 – Oats - $120 Premium and Policy #2 – Wheat - $165 Premium. 5. Apply the remaining Loss Credit to Policy #3 – Corn - $30 Fees, $83.12 Premium

Note: Each example is independent of the other.

25 Full Book Reconciliation______2nd Draft February 23, 2010 RMA-Appendix III 57

A. The recon reduction due will be calculated on the monthly/annual operation reports in October following the reinsurance year (i.e. October 2011 for Reinsurance Year 2011). Policy level PASS-Calculated discrepancy reports will be prepared for premium and losses. State coverage Summary Book of Business (SBOB) discrepancy reports will also be prepared for premium and losses. The discrepancy reports will be used to determine the recon reduction due on the operation reports for the negative financial impact to FCIC.

B. The policy level PASS-calculation discrepancy report will compare the accepted premium to the PASS-calculated premium which includes accepted and flagged records. On a monthly operation report, the recon reduction amount will calculate the negative financial impact to FCIC for the overage of A&O subsidy reimbursement on non-CAT coverage policies and Loss Adjustment Expense on CAT coverage policies because of premium discrepancies. On an annual operation report, the recon reduction amount will calculate the negative financial impact to FCIC for the shortage of premium due minus the A&O subsidy reimbursement on non-CAT coverage policies because of premium discrepancies. (See Exhibit 4-1)

C. The policy level PASS-calculation discrepancy report will compare the accepted loss to the Pass- calculated loss which includes accepted and flagged records. On a monthly/annual operation report, the recon reduction amount will calculate the negative financial impact to FCIC for the overage of 21/22 loss records. (See Exhibit 4-2)

D. Also, beginning in October following the reinsurance year (i.e. October 2011 for Reinsurance Year 2011) and every 6 months thereafter until data processing has ceased for the respective reinsurance year, the AIP will submit a Summary Book of Business (SBOB) by state level containing premium, subsidy, and loss. PASS accepted data will be compared the SBOB information by state level to determine the negative financial impact to FCIC for premium and loss values. If the discrepancies are outside the tolerance level for differences RMA will request detail information down to the policy level.

E. The SBOB state level discrepancy report will compare the PASS accepted premium by state level to the AIP submitted SBOB. On a monthly operation report, the recon reduction amount will be calculated on the negative financial impact to FCIC for the overage of A&O subsidy average reimbursement on non-CAT coverage policies and Loss Adjustment Expense on CAT coverage policies because of premium discrepancies by state level. On an annual operation report, the recon reduction amount will calculate the negative financial impact to FCIC for the shortage of premium due minus the A&O subsidy average reimbursement on non-CAT coverage policies because of premium discrepancies by state level. (See Exhibit 4-3)

F. The SBOB state level discrepancy report will compare the PASS accepted losses by state level to the AIP submitted SBOB. On a monthly/annual operation report, the recon reduction amount will calculate the negative financial impact to FCIC for the overage of accepted losses by state level. (See Exhibit 4-4)

G. The Reconciliation Reduction Worksheet will summarize the recon reduction amount due on the operation report. (See Exhibit 4-5)

2nd Draft February 23, 2010 RMA-Appendix III 58

Example of Recon Reduction for Discrepancies:

PASS Premium Discrepancy by Policy on Monthly Operation Report Recon Reduction PASS Accepted PASS - Calculation Calculation Recon Reduction Comments Non-CAT Policy $ 50 Net Financial Impact: Assumed 25% A&O Reimbursement for non-CAT policies and 6% Loss Adjustment $1,000 $800 CAT Policy $12 Expense for CAT policies $800 $1,000 $0 No Impact

PASS Premium Discrepancy by Policy on Annual Operation Report Recon Reduction PASS Accepted PASS - Calculation Calculation Recon Reduction Comments $1,000 $800 $0 No Impact Non-CAT Policy $ 175 Net Financial Impact: Assumed 25% A&O Reimbursement for non-CAT policies and 6% Loss Adjustment $800 $1,000 CAT Policy $0 Expense for CAT policies

PASS Loss Discrepancy by Policy on Operation Report Recon Reduction PASS Accepted PASS - Calculation Calculation Recon Reduction Comments Loss Difference included in Recon $600 $500 $100 Reduction $500 $600 $0 No Impact

SBOB Premium Discrepancy by State Level on Monthly Operation Report PASS Accepted AIP Submitted Recon Reduction by State Level SBOB Calculation Recon Reduction Comments Non-CAT Policy $ 160 Net Financial Impact: Assumed Ave 20% A&O Reimbursement for non- CAT policies and 6% Loss $4,000 $3,200 CAT Policy $48 Adjustment Expense for CAT policies $3,200 $4,000 $0 No Impact

SBOB Premium Discrepancy by State Level on Annual Operation Report PASS Accepted AIP Submitted Recon Reduction by State Level SBOB Calculation Recon Reduction Comments $4,000 $3,200 $0 No Impact $3,200 $4,000 Non-CAT Policy $640 Net Financial Impact: Assumed Ave

2nd Draft February 23, 2010 RMA-Appendix III 59

20% A&O Reimbursement for non- CAT policies and 6% Loss CAT Policy $0 Adjustment Expense for CAT policies

SBOB Loss Discrepancy by State Level on Annual Operation Report PASS Accepted AIP Submitted Recon Reduction by State Level SBOB Calculation Recon Reduction Comments $2,400 $2,000 $400 Loss Difference $2,000 $2,400 $0 No Impact

2nd Draft February 23, 2010 RMA-Appendix III 60

FCIC OPERATIONS REPORT PAGE: 1 RO XX REINSURANCE YEAR - YYYY RCP001-C Reinsured Company Name MONTHLY C/O MGA

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY ======PREMIUM PAID LOSS-CR SUBSIDY LOSSES ADDT SUBSIDY GROUP RISK 0 .00 0 0 0 0 REVENUE HARV. OPT. 0 .00 0 0 0 0 OTHER 0 .00 0 0 0 0 TOTAL NON CAT 0 .00 0 0 0 0 ======CAT 0 0 0 ======(L/R = .0000 ) DUE COMPANY DUE FCIC a.NET EXPENSE REIMBURSEMENT .00 b.NET CONTINGENCY FUND .00 c.PREMIUM COLLECTED .00 .00 d.ESCROW AND DRAFTS .00 .00 .00 e.LOSS DEDUCTIONS (F,R,O) .00 .00 .00 .00 f.STATE SUBSIDY .00 g.COMPANY PREVIOUS PAYMENT .00 h.FCIC INTEREST PAID .00 i.ADJUSTMENTS DUE COMPANY .00 j.NET ADMINISTRATIVE FEE ADJUSTMENT .00 k.REDUCTIONS DUE TO RECON REPORT DIFFERENCES .00 l.FCIC INTEREST/PENALTY .00 m.ADJUSTMENTS DUE FCIC .00 n.FCIC PREVIOUS PAYMENT .00 o.ESCROW FUNDED .00 p.PAID PREVIOUS WORKSHEETS .00 .00 q.UNDERWRITING LOSS .00 .00 r.SUBTOTAL .00 .00 s.TOTAL FROM CURRENT WORKSHEET .00 .00 t.BALANCE DUE COMPANY/FCIC .00 ======ESCROW REIMBURSEMENT ======u.PREVIOUS ESCROW FUNDED .00 v.LESS DRAFTS ISSUED (ESCROW) .00 w.ESCROW BALANCE .00 ======CERTIFIED CORRECT

______NAME TITLE DATE NOTE: ANY FALSE CERTIFICATION MADE TO THE CORPORATION MAY SUBJECT THE MAKER TO CRIMINAL AND CIVIL PENALTIES AS PROVIDED IN 18 U.S.C. 287,1001; 31 U.S.C. 3729 AND 3730

2nd Draft February 23, 2010 RMA-Appendix III 1 - 1

FCIC INSTALLMENT REPORT PAGE: 1 RO XX REINSURANCE YEAR - YYYY INS001 Reinsured Company Name C/O MGA

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY ======PREMIUM PAID LOSS-CR SUBSIDY LOSSES ADDT SUBSIDY GROUP RISK 0 .00 0 0 0 0 REVENUE HARV. OPT. 0 .00 0 0 0 0 OTHER 0 .00 0 0 0 0 TOTAL NON CAT 0 .00 0 0 0 0 ======CAT 0 0 0 ======

DUE COMPANY ADMINISTRATIVE AND OPERATING SUBSIDY GROUP RISK GRP/GRIP (SRA REIMB RATE 12.0%) - 75% COVERAGE LEVEL 9,999,999 .00 (SRA REIMB RATE 12.0%) - 80% COVERAGE LEVEL 9,999,999 .00 (SRA REIMB RATE 12.0%) - 85% COVERAGE LEVEL 9,999,999 .00 PRF (SRA REIMB RATE 20.1%) - 75% COVERAGE LEVEL 9,999,999 .00 (SRA REIMB RATE 17.8%) - 80% COVERAGE LEVEL 9,999,999 .00 (SRA REIMB RATE 17.1%) - 85% COVERAGE LEVEL 9,999,999 .00

TOTAL GROUP RISK .00 REVENUE HARV. OPT. (SRA REIMB RATE 18.5%) - 75% COVERAGE LEVEL 9,999,999 .00 (SRA REIMB RATE 16.4%) - 80% COVERAGE LEVEL 9,999,999 .00 (SRA REIMB RATE 15.8%) - 85% COVERAGE LEVEL 9,999,999 .00

TOTAL REVENUE .00 OTHER (SRA REIMB RATE 21.9%) - 75% COVERAGE LEVEL 9,999,999 .00 (SRA REIMB RATE 19.4%) - 80% COVERAGE LEVEL 9,999,999 .00 (SRA REIMB RATE 18.7%) - 85% COVERAGE LEVEL 9,999,999 .00 TOTAL OTHER .00

TOTAL ADMINISTRATIVE AND OPERATING SUBSIDY .00

CAT LOSS ADJUSTMENT (6.0%) 9,999,999 .00

NET EXPENSE REIMBURSEMENT .00 ======

2nd Draft February 23, 2010 RMA-Appendix III 1 - 2

RO XX FCIC STATE REIMBURSEMENT REPORT PAGE: 1 Reinsured Company Name REINSURANCE YEAR - YYYY INS002 C/O MGA

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY ======RATE PLAN INS COV REIMBURSE TOTAL REIMBURSEMENT ST CHG GROUP PLAN LVL RATE PREMIUM AMOUNT ======

AL Y CAT 41 .5000 .06000 999,999 9,999.99 86 .5000 .06000 999,999 9,999.99 90 .5000 .06000 999,999 9,999.99 GRP 73 .9000 .12000 999,999 9,999.99 OTH 41 .5000 .23050 999,999 9,999.99 86 .5000 .23050 999,999 9,999.99 .7500 .23050 999,999 9,999.99 90 .5000 .23050 999,999 9,999.99 .7500 .23050 999,999 9,999.99 .8500 .19850 999,999 9,999.99 REV 44 .5000 .19650 999,999 9,999.99 .7000 .19650 999,999 9,999.99 .7500 .19650 999,999 9,999.99

*TOTAL STATE AL 9,999,999 99,999.99

WY N CAT 41 .5000 .06000 999,999 9,999.99 86 .5000 .06000 999,999 9,999.99 90 .5000 .06000 999,999 9,999.99 GRP 73 .9000 .12000 999,999 9,999.99 OTH 41 .5000 .21900 999,999 9,999.99 86 .5000 .21900 999,999 9,999.99 .7500 .19400 999,999 9,999.99 90 .5000 .21900 999,999 9,999.99 .7500 .19400 999,999 9,999.99 .8500 .18700 999,999 9,999.99 REV 44 .5000 .18500 999,999 9,999.99 .8000 .16400 999,999 9,999.99 .9000 .15800 999,999 9,999.99

*TOTAL STATE WY 9,999,999 99,999.99

TOTAL 99,999,999 999,999.99

2nd Draft February 23, 2010 RMA-Appendix III 1 - 3

FCIC OPERATIONS REPORT PAGE: 1 RO XX REINSURANCE YEAR - YYYY RCP002-C Reinsured Company Name ANNUAL C/O MGA

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY ======PREMIUM PAID LOSS-CR SUBSIDY LOSSES ADDT SUBSIDY GROUP RISK 0 .00 0 0 0 0 REVENUE HARV. OPT. 0 .00 0 0 0 0 OTHER 0 .00 0 0 0 0 TOTAL NON CAT 0 .00 0 0 0 0 ======CAT 0 0 0 ======(L/R = .0000 ) DUE COMPANY DUE FCIC a.NET EXPENSE REIMBURSEMENT ADJUSTMENT .00 b.NET CONTINGENCY FUND .00 c.PREMIUM COLLECTED .00 .00 d.LOSS-CR, ESCROW, AND DRAFTS .00 .00 .00 .00 e.LOSS DEDUCTIONS (F,R,O) .00 .00 .00 .00 f.STATE SUBSIDY .00 g.SUBSIDY .00 h.ADDITIONAL SUBSIDY .00 i.COMPANY PREVIOUS PAYMENT .00 j.FCIC INTEREST PAID .00 k.ADJUSTMENTS DUE COMPANY .00 l.NET ADMINISTRATIVE FEE ADJUSTMENT .00 m.REDUCTIONS DUE TO RECON REPORT DIFFERENCES .00 n.FCIC INTEREST/PENALTY .00 o.ADJUSTMENTS DUE FCIC .00 p.FCIC PREVIOUS PAYMENT .00 q.ESCROW FUNDED .00 r.PAID PREVIOUS WORKSHEETS .00 .00 s.UNDERWRITING GAIN/LOSS .00 .00 t.SUBTOTAL .00 .00 u.TOTAL FROM CURRENT WORKSHEET .00 .00 v.BALANCE DUE COMPANY/FCIC .00 .00 ======ESCROW REIMBURSEMENT ======w.PREVIOUS ESCROW FUNDED .00 x.LESS DRAFTS ISSUED (ESCROW) .00 y.ESCROW BALANCE .00 ======CERTIFIED CORRECT

______NAME TITLE DATE NOTE: ANY FALSE CERTIFICATION MADE TO THE CORPORATION MAY SUBJECT THE MAKER TO CRIMINAL AND CIVIL PENALTIES AS PROVIDED IN 18 U.S.C. 287,1001; 31 U.S.C. 3729 AND 3730

2nd Draft February 23, 2010 RMA-Appendix III 1 - 4

FCIC ADMINISTRATIVE FEE REPORT RO XX REINSURANCE YEAR YYYY FEE002 REINSURANCE COMPANY NAME (MONTHLY) C/O MGA

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY ======

CAT FEES DUE FCIC 9,900.00 ADDITIONAL COVERAGE FEES COLLECTED .00 LESS COMPANY CAT FEES REDUCTION 1,000.00

ADMINISTATIVE FEES DUE FCIC 8,900.00

2nd Draft February 23, 2010 RMA-Appendix III 1 - 5

FCIC ACCOUNTING DETAIL REPORT (EXCLUDING CAT) ADR001 RO XX REINSURANCE YEAR YYYY REINSURANCE COMPANY NAME MONTHLY C/0 MGA

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY ======CLEARED ADDT ST CO POL # YR NAME (NOTES) PREMIUM PAID LOSS-CR SUBSIDY LOSSES SUBSIDY ======

XX 999 999999 YYYY DOE, JOHN * 9,999 9,999 999 9,999 999 99 XX 999 999999 YYYY DOE, JOHN * 9,999 9,999 999 9,999 999 99 XX 999 999999 YYYY DOE, JOHN * 9,999 9,999 999 9,999 999 99 XX 999 999999 YYYY DOE, JOHN * 9,999 9,999 999 9,999 999 99 XX 999 999999 YYYY DOE, JOHN * 9,999 9,999 999 9,999 999 99 XX 999 999999 YYYY DOE, JOHN * 9,999 9,999 999 9,999 999 99 XX 999 999999 YYYY DOE, JANE * 9,999 9,999 999 9,999 999 99 XX 999 999999 YYYY DOE, JANE * 9,999 9,999 999 9,999 999 99 XX 999 999999 YYYY DOE, JANE * 9,999 9,999 999 9,999 999 99 XX 999 999999 YYYY DOE, JANE * 9,999 9,999 999 9,999 999 99 XX 999 999999 YYYY DOE, JANE * 9,999 9,999 999 9,999 999 99 XX 999 999999 YYYY DOE, JANE * 9,999 9,999 999 9,999 999 99

TOTAL 9,999 9,999 999 9,999 9,999 99

*** NOTES *** (*) – Assigned Risk FUND (V) - OVERPAID (P) - PAYMENT CR MEMO (E) - ESCROW

2nd Draft February 23, 2010 RMA-Appendix III 1 - 6

FCIC ACCOUNTING DETAIL REPORT (EXCLUDING CAT ADR002 RO XX REINSURANCE YEAR YYYY REINSURANCE COMPANY NAME STATE TOTALS C/O MGA

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY ======CLEARED ADDT ST PREMIUM PAIDS LOSS-CR SUBSIDY LOSSES SUBSIDY ======

CO 99,999 0.00 0 99,999 0 0 KS 99,999 0.00 0 99,999 0 0 NE 99,999 0.00 0 99,999 0 0 TX 99,999 0.00 0 99,999 0 0

TOTAL 999,999 0.00 0 999,999 0 0

2nd Draft February 23, 2010 RMA-Appendix III 1 - 7

FCIC DETAIL REPORT (EXCLUDING CAT) ADR003 RO XX REINSURANCE YEAR - YYYY REINSURANCE COMPANY NAME GRAND TOTALS C/O MGA

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY ======

CLEARED ADDT CROP YR PREMIUM PAID S LOSS-CR SUBSIDY LOSSES SUBSIDY ======

YYYY (-1) 9,999,999 99,999.99 0 9,999,999 0 0 YYYY 99,999,999 999,999.99 0 99,999,999 YYYY (+1) 99,999 9.99 0 99,999

TOTALS 99,999,999 999,999.99 0 99,999,999 0 0

OVERPAIDS 999.99 0

GRAND TOTALS LESS OVERPAIDS 99,999,999 999,999.99 0 99,999,999 0 0

PMEMO 999,999 MMEMO 999,999 PLCR 999,999

2nd Draft February 23, 2010 RMA-Appendix III 1 - 8

FCIC DETAIL OVERPAIDS REPORT (EXCLUDING CAT) ADR004 RO XX REINSURANCE YEAR - YYYY REINSURANCE COMPANY NAME OVERPAID POLICIES C/O MGA

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE : MM/DD/YYYY ======

CLEARED ADDT OVER OVER ST CO POLICY YR PREMIUM PAIDS LOSS CR SUBSIDY LOSSES SUBSIDY PAID LOSS-CR ======

AL 999 9999999 YYYY 9,999 9,999.99 999.99 999.99 999.99 9.99 99.99 9.99

*TOTAL STATE AL 9,999 9,999.99 999.99 999.99 999.99 9.99 99.99 9.99

AR 999 9999999 YYYY 9,999 9,999.99 999.99 999.99 999.99 9.99 99.99 9.99

*TOTAL STATE AR 9,999 9,999.99 999.99 999.99 999.99 9.99 99.99 9.99

TOTAL 9,999 9,999.00 999.99 999.99 999.99 9.99 99.99 9.99

2nd Draft February 23, 2010 RMA-Appendix III 1 - 9

P/CR MEMO REJECT LISTING PCR001 RO XX REINSURANCE YEAR - YYYY REINSURANCE COMPANY NAME C/O MGA

CURRENT DATE: MM/DD/YYYY CUTOFF DATE: MM/DD/YYYY ======

MEMO MEMO MEMO MEMO PMEMO SOURCE SOURCE SOURCE SOURCE RO LOC ST CNO POLICY NO CROP YR AMOUNT RO ST CNO POLICY NO ======

XX NE 999 999999 YYYY 999.00 XX 31 999 9999999 PE 999 999999 YYYY 9,999.00 XX 42 999 9999999 PE 999 999999 YYYY 9,999.00 XX 42 999 9999999 999999 YYYY 99.00 XX 19 999 9999999 999999 YYYY 9,999.00 XX 42 999 9999999

TOTAL 99,999.00

2nd Draft February 23, 2010 RMA-Appendix III 1 - 10

EXAMPLE 1:

INTEREST CALCULATIONS ON LATE ACCOUNTING REPORT PAYMENTS

REPORT REPORT AMOUNT DAYS INTEREST NOTE DATE DUE RECEIVED LATE RATE AMOUNT REF.

05/08/YYYY 05/29/YYYY $100,000 4 15% $164.38 1

11/06/YYYY 11/30/YYYY $1,000,000 7 15% $2,876.71 2

1. Payment of the $100,000 balance due FCIC on the 05/08/YYYY report, due on 05/29/YYYY, the last banking day of the month, is received on 06/02/YYYY.

2. Payment of the $1,000,000 balance due FCIC on the 11/06/YYYY report, due on 11/30/YYYY, the last banking day in the month, is received on 12/07/YYYY.

2nd Draft February 23, 2010 RMA-Appendix III 1 - 11

EXAMPLE 2:

INTEREST CALCULATIONS ON OVERPAID INDEMNITIES/UNDERSTATED PREMIUM CASES IDENTIFIED THROUGH REVIEW

FINAL FINDINGS OVERPAYMENT DATE OF APPEAL ACCOUNTING INTEREST INTEREST NOTE LETTER AMOUNT APPEAL LETTER DATE REPORT DATE DAYS RATE DUE REF

1/20/YYYY $10,000 N/A N/A 02/09/YYYY 26 15% 0.00 1 1/20/YYYY $15,000 N/A N/A 04/09/YYYY 100 15% $616.44 2 1/20/YYYY $20,000 2/15/YYYY 11/28/YYYY 12/11/YYYY 345 15% $2,835.62 3

1. The Company is notified of an overpayment in a Final Findings by the Regional Compliance Offices letter dated January 20, YYYY. The February 9, YYYY report containing the correction was filed timely. Since the report was corrected within 30 days, interest does not attach.

2. The Company is notified of an overpayment amount in a Final Findings by the Regional Compliance Offices letter dated January 20, YYYY. The amount is to be corrected on the February 9, YYYY report. No appeal is filed. No corrections are made until the April 9, YYYY report. Interest is calculated starting with the day after the Final Findings by the Regional Compliance Offices letter which is January 21, YYYY through the due date of the certified report containing the corrections is submitted, which is April 30, YYYY.

3. Interest begins accruing based on the date of the Final Findings by the Regional Compliance Offices letter. Appeals have no affect on delaying the interest computation date. In this example, the company is notified of an overpayment in a Final Findings by the Regional Compliance Offices letter dated January 20, YYYY. The company files an appeal on February 15, YYYY. The appeal is heard and FCIC receives a favorable decision. Had the company received a favorable decision, no interest is due. The Company is notified by an Appeal Determination letter on November 28, YYYY of the amount due FCIC. Interest is calculated starting with the day after the Final Findings by the Regional Compliance Offices letter, which is January 21, YYYY through the due date of the certified report containing the correction is submitted, which is December 31, YYYY.

2nd Draft February 23, 2010 RMA-Appendix III 1 - 12

CAT COVERAGE FEES (EXCLUDING BUY-UPS) CFE001 RO XX REINSURED COMPANY DETAIL REPORT REINSURANCE COMPANY NAME REINSURANCE YEAR YYYY C/O MGA MONTHLY

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY ======POLICY CROP LOC CROP PRAC A ADM FEES FEES FEES ID NUMBER ST CO NUMBER YEAR CNTY CODE TYPE CODE R FEE PREMIUM LOSSES AMOUNT COLLECTED WAIVED ======

999999999 CA 999 999999 YYYY 999 0037 999 999 C 999 300 999999999 IL 999 999999 YYYY 999 0011 997 999 C 999 300 999999999 MO 999 999999 YYYY 999 0011 997 998 C 999 300 999999999 MN 999 999999 YYYY 999 0033 997 998 C 9,999 300 999999999 KS 999 999999 YYYY 999 0011 997 998 C 999 300 999999999 MN 999 999999 YYYY 999 0033 997 998 C 999 300 999999999 IL 999 999999 YYYY 999 0011 997 998 C 99 300 999999999 IL 999 999999 YYYY 999 0011 997 998 C 9,999 300 999999999 IL 999 999999 YYYY 999 0011 997 998 C 99 300 999999999 OH 999 999999 YYYY 999 0011 997 998 A 99 300 999999999 IL 999 999999 YYYY 999 0011 997 998 C 999 300 999999999 IL 999 999999 YYYY 999 0011 997 998 A 999 300 999999999 IN 999 999999 YYYY 999 0011 997 998 C 99 300 999999999 IL 999 999999 YYYY 999 0011 997 998 A 999 300 999999999 IL 999 999999 YYYY 999 0011 997 998 C 999 300 999999999 IL 999 999999 YYYY 999 0011 997 998 C 999 300

TOTAL 9,999 4,600

*** NOTES *** YYYY Catastrophic Coverage Fees

The CAT Fee amount for all crops will be $300.

2nd Draft February 23, 2010 RMA-Appendix III 2 - 1

CAT COVERAGE FEES CFE002 RO XX REINSURED COMPANY DETAIL REPORT REINSURANCE COMPANY NAME REINSURANCE YEAR YYYY C/O MGA

DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY

ST PREMIUM LOSSES FEE AMOUNT FEES COLLECTED FEES WAIVED AL 999,999 99,999 999 999 AR 999,999 99,999 999 999 AZ 999,999 99,999 999 999 CA 999,999 99,999 999 999 CO 999,999 99,999 999 999 CT 999,999 99,999 999 999 MO 999,999 99,999 999 999 MS 999,999 99,999 999 999 MT 999,999 99,999 999 999 NC 999,999 99,999 999 999 ND 999,999 99,999 999 999 NE 999,999 99,999 999 999 NJ 999,999 99,999 999 999 NM 999,999 99,999 999 999 NY 999,999 99,999 999 999 OH 999,999 99,999 999 999 OK 999,999 99,999 999 999 OR 999,999 99,999 999 999 PA 999,999 99,999 999 999 SC 999,999 99,999 999 999

YYYY (-1) 999,999 0 99,999 999 999 YYYY 99,999,999 0 99,999 99,999 9,999 YYYY (+1) 9,999,999 0 99,999 9,999 999

TOTAL 999,999,999 0 999,999 99,999 99,999

2nd Draft February 23, 2010 RMA-Appendix III 2 - 2

CFE003 CAT COVERAGE FEES RO XX RECEIVABLE REPORT REINSURANCE COMPANY NAME REINSURANCE YEAR – YYYY C/O MGA

CURRENT DATE/TIME: MM/DD/YYYY HH:MM:SS CUTOFF DATE: MM/DD/YYYY ======TAX ID POLICY CROP CROP WRT COLL FEE ADJ RET CHK INT/PEN COLLECT BALANCE CO CAT FEE ID TYP PIC ST CNTY NBR YEAR CODE OFF ID AMT AMT AMT AMT AMT DUE REDUCT AMT ======999999999 9 999 99 999 9999999 YYYY 9999 300.00 .00 .00 .00 .00 300.00 300.00

TOTAL 300.00 .00 .00 .00 .00 300.00 300.00

2nd Draft February 23, 2010 RMA-Appendix III 2 - 3

ADDITIONAL COVERAGE ADMINISTRATIVE FEE SUMMARY REPORT PAGE 1 RO XX REINSURANCE YEAR - YYYY ACA001 REINSURANCE COMPANY NAME MONTHLY C/O MGA

CURRENT DATE/TIME: MM/DD/YYYY HH:MM:SS CUTOFF DATE: MM/DD/YYYY ======YYYY YYYY YYYY YYYY YYYY YYYY YYYY YYYY YYYY YYYY YYYY +1 YYYY +1 PRE STATE JAN APR MAY JUN JUL AUG SEP OCT NOV DEC JAN MAR PAID TOTAL ======AR 0 0 0 0 0 0 0 0 0 0 0 0 0 0 GA 0 0 0 0 0 0 0 0 0 0 0 0 0 0 IA 0 0 0 0 0 0 0 0 0 0 0 0 0 0 ID 0 0 0 0 0 0 0 0 0 0 0 0 0 0 IL 0 0 0 0 0 0 0 0 0 0 0 0 0 0 IN 0 0 0 0 0 0 0 0 0 0 0 0 0 0 KS 0 0 0 0 0 0 0 0 0 0 0 0 0 0 MI 0 0 0 0 0 0 0 0 0 0 0 0 0 0 MN 0 0 0 0 0 0 0 0 0 0 0 0 0 0 MO 0 0 0 0 0 0 0 0 0 0 0 0 0 0 ND 0 0 0 0 0 0 0 0 0 0 0 0 0 0 NM 0 0 0 0 0 0 0 0 0 0 0 0 0 0 OH 0 0 0 0 0 0 0 0 0 0 0 0 0 0 SD 0 0 0 0 0 0 0 0 0 0 0 0 0 0 TX 0 0 0 0 0 0 0 0 0 0 0 0 0 0

TOTAL 0 0 0 0 0 0 0 0 0 0 0 0 0 0 ------

TOTAL 0 0 0 0 0 0 0 0 0 0 0 0 0 0 WAIVED 0 0 0 0 0 0 0 0 0 0 0 0 0 0 GRAND 0 0 0 0 0 0 0 0 0 0 0 0 0 0

2nd Draft February 23, 2010 RMA-Appendix III 2 - 4

RO XX FCIC REINSURANCE RUN PAGE 1 REINSURANCE COMPANY NAME REINSURANCE YEAR YYYY REIPRT01 C/O MGA

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY

STATE POOL % LIABILITY PREMIUMS LOSSES LOSS AR RATIO COMMERCIAL 9.9 999,999 999,999 99,999 9.9 SUBTOTAL 1 999,999 999,999 99,999 9.9

COMMERCIAL Min. 25 9.9 999,999 999,999 99,999 9.9 REVISED SUBTOTAL 1 999,999 999,999 99,999 9.9

COMMERCIAL 9.9 999,999 999,999 99,999 9.9 RETAINED SUBTOTAL 2 999,999 999,999 99,999 9.9

COMMERCIAL Min. 35 9.9 999,999 999,999 99,999 9.9 RETAINED SUBTOTAL 3 999,999 999,999 99,999 9.9

COMMERCIAL 9.9 999,999 99,999 9.9 SUBTOTAL 4 999,999 99,999 9.9

COMMERCIAL GAIN/LOSS 999,999 (9,999) STATE GAIN/LOSS 999,999 (9,999)

(CONTINUED)

2nd Draft February 23, 2010 RMA-Appendix III 3 - 1

RO XX FCIC REINSURANCE RUN PAGE 2 REINSURANCE COMPANY NAME REINSURANCE YEAR YYYY REIPRT01 C/O MGA

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY

RO RECAP POOL % LIABILITY PREMIUMS LOSSES LOSS RATIO COMMERCIAL 9.9 999,999 999,999 99,999 9.9 RESIDUAL 9.9 999,999 999,999 99,999 9.9 SUBTOTAL 1 999,999 999,999 99,999 9.9

COMMERCIAL 9.9 999,999 999,999 99,999 9.9 RESIDUAL 9.9 999,999 999,999 99,999 9.9 REVISED SUBTOTAL 1 999,999 999,999 99,999 9.9

COMMERCIAL 9.9 999,999 999,999 99,999 9.9 RESIDUAL 9.9 999,999 999,999 99,999 9.9 RETAINED SUBTOTAL 2 999,999 999,999 99,999 9.9

COMMERCIAL 9.9 999,999 999,999 99,999 9.9 RESIDUAL 9.9 999,999 999,999 99,999 9.9 RETAINED SUBTOTAL 3 999,999 999,999 99,999 9.9

COMMERCIAL 9.9 999,999 99,999 9.9 RESIDUAL 9.9 999,999 99,999 9.9 SUBTOTAL 4 999,999 99,999 9.9

2nd Draft February 23, 2010 RMA-Appendix III 3 - 2

RO XX FCIC REINSURANCE RUN PAGE 23 Reinsurance Company Name REINSURANCE YEAR YYYY REIPRT01 C/O MGA

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY

RO RECAP POOL % LIABILITY PREMIUMS LOSSES LOSS RATIO COMMERCIAL GAIN/LOSS 9,999,999 (999,999) RESIDUAL GAIN/LOSS 9,999,999 (999,999) GROSS GAIN/LOSS 99,999,999 (9,999,999) LESS QUOTA SHARE 9,999,999 (99,999) GAIN/LOSS AFTER QUOTA SHARE 99,999,999 (9,999,999) PAYOUT QUOTA SHARE 9,999,999 (9,999,999) GAIN/LOSS 999,999,999 (99,999,999)

2nd Draft February 23, 2010 RMA-Appendix III 3 - 3

RO XX RECONCILIATION REDUCTION WORKSHEET Page: 1 Reinsurance Company Name REINSURANCE YEAR YYYY RECXXX C/O MGA ANNUAL SETTLEMENT REPORT

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY

Premium

PASS Premium Discrepancy by Policy Level 9,999,999,999 SBOB Premium Discrepancy by State 9,999,999,999

Total Non-CAT 9,999,999,999

PASS Premium Discrepancy by Policy Level 9,999,999,999

SBOB Premium Discrepancy by State 9,999,999,999

Total CAT 9,999,999,999

TOTAL PREMIUM RECON REDUCTION 9,999,999,999

Loss PASS Loss Discrepancy by Policy Level 9,999,999,999

SBOB Loss Discrepancy 9,999,999,999

Total Loss Reduction 9,999,999,999

Total

Total Recon Reduction 9,999,999,999

2nd Draft February 23, 2010 RMA-Appendix III 4 - 1

RO XX RECONCILIATION REDUCTION WORKSHEET Page: 1 Reinsurance Company Name REINSURANCE YEAR YYYY RECXXX C/O MGA PASS PREMIUM DISCREPANCY BY POLICY

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY

PASS CROP CROP COVERAGE PASS ACCEPTED CALCULATED AIP STATE CO POLICY YEAR CODE FLAG LOSS LOSS DIFFERENCE XX XX 999 9999999 YYYY 9999 A 9,999,999,999 9,999,999,999 9,999,999,999 XX XX 999 9999999 YYYY 9999 A 9,999,999,999 9,999,999,999 9,999,999,999

XX XX 999 9999999 YYYY 9999 C 9,999,999,999 9,999,999,999 9,999,999,999 XX XX 999 9999999 YYYY 9999 C 9,999,999,999 9,999,999,999 9,999,999,999

TOTALS PREMIUM DISCREPANCY BY POLICY LEVEL 9,999,999,999

2nd Draft February 23, 2010 RMA-Appendix III 4 - 2

RO XX RECONCILIATION REDUCTION WORKSHEET Page: 1 Reinsurance Company Name REINSURANCE YEAR YYYY RECXXX C/O MGA SBOB PREMIUM DISCREPANCY

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY

AIP 70 AIP 70 Average RECORD RECORD COVERAGE A&O SUBSIDY PASS Accepted SUBMITTED PASS Accepted SUBMITTED - SUBSIDY) RO STATE FLAG REIMBURSEMENT PREMIUM PREMIUM SUBSIDY SUBSIDY DIFFERENCE

XX XX A 99.9% 999,999,999 99,999 999,999,999 99,999 999

SBOB PREMIUM DISCREPANCY FOR NON-CAT

XX XX C 99.9% 999,999,999 99,999 999,999,999 99,999 999

SBOB PEMIUM DISCREPANCY FOR CAT

2nd Draft February 23, 2010 RMA-Appendix III 4 - 3

RO XX RECONCILIATION REDUCTION WORKSHEET Page: 1 Reinsurance Company Name REINSURANCE YEAR YYYY RECXXX C/O MGA PASS LOSS DISCREPANCY BY POLICY

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY

PASS PASS CROP CROP COVERAGE Accepted Calculated RO STATE CO POLICY YEAR CODE FLAG LOSS LOSS DIFFERENCE

XX XX 999 9999999 YYYY 9999 A 99,999 99,999 999 XX XX 999 9999999 YYYY 9999 C 99,999 99,999 999

TOTAL PASS LOSS DISCREPANCY BY POLICY LEVEL

2nd Draft February 23, 2010 RMA-Appendix III 4 - 4

RO XX RECONCILIATION REDUCTION WORKSHEET Page: 1 Reinsurance Company Name REINSURANCE YEAR YYYY RECXXX C/O MGA SBOB LOSS DISCREPANCY

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY

AIP 70 PASS RECORD Accepted SUBMITTED LOSS RECON RO STATE LOSS LOSS DIFFERENCE REDUCTION XX XX 999,999,999 99,999 999 999

SBOB LOSS DISCREPANCY 999

2nd Draft February 23, 2010 RMA-Appendix III 4 - 5

FCIC ADMINISTRATIVE REDUCTION REPORT PAGE: 1 RO XX FOR LATE REPORTED REDUCTION (LRR) Reinsured Company Name REINSURANCE YEAR - YYYY LRR002 C/O MGA

CURRENT DATE: MM/DD/YYYY HH:MM:SS CUTOFF DATE: MM/DD/YYYY ======NET BOOK TOTAL RO ST PREMIUM REDUCTION ======XX XX 999,999 999,999.99 XX 999,999 999,999.99 XX 999,999 999,999.99 XX 999,999 999,999.99

------GRAND TOTALS 9,999,999 999,999.99 ------

TOTAL 1.0% 9,999.99 TOTAL 3.0% 9,999.99 TOTAL 6.0% 99,999.99 ------GRAND TOTAL 99,999.99

2nd Draft February 23, 2010 RMA-Appendix III 5 - 1

2nd Draft February 23, 2010 RMA-Appendix III 5 - 2

FCIC ACCOUNTING REPORT PAGE: 1 RO XX PREMIUM DUE WORKSHEET PDW001-C Reinsured Company Name REINSURANCE YEAR - YYYY C/O MGA

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY ======(A) (B) (C) (D) (E) (F) (G) INSURED PREM PAID PREM PREV NBR DAYS INTEREST TOTAL OF PREM DUE BY CO. UNPAID MONTH INTEREST DUE WORKSHEET MONTH (A-B) UNPAID (%)*(D)*(E) (-B-F) ======

JANUARY YYYY 99,999 _ ___ 999 99 99 99.99 999.99

MARCH YYYY 9,999 ______99 99 99 99.99 999.99

MAY YYYY ______

JULY YYYY ______

OCTOBER YYYY ______

JANUARY YYYY (+1) ______

TOTAL 999,999 9,999.99

2nd Draft February 23, 2010 RMA-Appendix III 6- 1

EXAMPLE 3:

PREMIUM DUE WITHOUT (W/O) PAYMENTS

PREMIUM AMOUNT OF PAYMENT INCREASES IN DAYS DUE REPORT TOTAL PREMIUM PREMIUM FROM (365 DAY YR.) INTEREST INTEREST NOTE DATE DATE DUE W/O PMT. PREVIOUS PEAK (EXACT DAYS) RATE AMOUNT REF.

08/15/YYYY 09/10/YYYY $1,000,000 $0 0 0 $0.00 1 08/15/YYYY 10/31/YYYY $1,200,000 $200,000 61 15% $5,013.70 2 08/15/YYYY 11/09/YYYY $1,300,000 $100,000 91 15% $3,739.73 3 08/15/YYYY 01/08/YYYY(+1) $1,100,000 $0 0 15% $0.00 4 08/15/YYYY 02/12/YYYY(+1) $1,400,000 $100,000 179 15% $7,356.16 5

1. Total premium with an August billing date is due to FCIC on September 30.

2. Total premium with an August billing date due to FCIC September 30 has increased by $200,000. The premium should have been reported on the September report. The company is charged for two full month's interest on the October report.

3. Total premium with an August billing date due to FCIC September 30 has increased by $100,000 during November. The premium should have been reported on the September report. The company is charged three full month's interest on the November report.

4. The total premium reported did not increase during the month.

5. Total premium with an August billing date due to FCIC September 30 has further increased during the month by another $100,000. The premium should have been reported on the September report. The company is charged six month's interest.

2nd Draft February 23, 2010 RMA-Appendix III 6- 2

FCIC SUMMARY REPORT (MONTHLY) PREMIUM DUE WITHOUT PAYMENTS WORKSHEET PDW002 REINSURANCE YEAR - YYYY

RO XX Reinsured Company Name C/O MGA

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY ======(A) (B) (C) (D) (E) (F) (G) CURRENT PREVIOUS RPT DATE INC OF PREM NBR DAYS INTEREST TOTAL OF MONTH REPORT PEAK OF PEAK DUE WO PAYM INTEREST DUE INTEREST ======

JANUARY YYYY 999 999 MM/DD/YYY 99 99 99.99 99.99

MARCH YYYY 999 999 MM/DD/YYY 99 99 99.99 99.99

MAY YYYY

JULY YYYY

OCTOBER YYYY __

JANUARY YYYY(+1)

TOTAL 999.99

2nd Draft February 23, 2010 RMA-Appendix III 6- 3

EXAMPLE:4

PREMIUM DUE WORKSHEET – AUGUST PREMIUM DEFERRED (EXAMPLE SHOWING FLOW THROUGH 4 OPERATIONS REPORTS)

PREMIUM (A) (B) (C) (D) (E) (F) (G) PAYMENT INS'DS PREM PREMIUM PREVIOUS DAYS INTEREST TOTAL OF REPORT DUE PREMIUMPAID UNPAID MONTH (365 DAY DUE WORKSHEET NOTE DATE DATE DUE BY CO. (A-B) UNPAID YEAR) (%*D*E) (-B-F) REF

09/DD/YYYY AUGUST/YYYY $3,000,000 $0 $3,000,000 $0 0 $000 $0.00 1

10/DD/YYYY AUGUST/YYYY $2,200,000 $0 $2,200,000 $3,000,000 61 $75,205.48 $75,205.48 2

11/DD/YYYY AUGUST/YYYY $1,500,000 $0 $1,500,000 $2,200,000 30 $27,123.29 $27,123.29 3

12/DD/YYYY AUGUST/YYYY $750,000 $0 $750,000 $1,500,000 31 $19,109.59 $19,109.59 4

1. Premium with an August billing date is deferred. No interest is due on this report.

2. Interest is charged on the $3,000,000 of premium deferred the previous month (Column D at an annual rate of 15% for the period 09/01/YYYY through 10/31/YYYY.

3. Interest is charged on the $2,200,000 of premium deferred the previous month (Column D) at an annual rate of 15% for the period 11/01/YYYY through 11/30/YYYY.

4. Interest is charged on the $1,500,000 of premium deferred the previous month (Column D) at an annual rate of 15% for the period 12/01/YYYY through 12/31/YYYY.

Note: Once annual settlement is reached premium can no longer be deferred, all premium is due FCIC even if it remains uncollected.

2nd Draft February 23, 2010 RMA-Appendix III 6- 4

EXAMPLE:5

PREMIUM DUE WORKSHEET - AUGUST PREMIUM PAID BY COMPANY

PREMIUM (A) (B) (C) (D) (E) (F) (G) PAYMENT INS'DS PREM PREMIUM PREVIOUS DAYS INTEREST TOTAL OF REPORT DUE PREMIUM PAID UNPAID MONTH (365 DAY DUE WORKSHEET NOTE DATE DATE DUE BY CO. (A-B) UNPAID YEAR) (%*D*E) (-B-F) REF

09/DD/YYYY AUGUST/YYYY 3,000,000 3,000,000 0 0 0 0 -3,000,000 1

10/DD/YYYY AUGUST/YYYY -2,000,000 -2,000,000 0 0 0 0 2,000,000 2

11/DD/YYYY AUGUST/YYYY -500,000 -500,000 0 0 0 0 500,000 3

10/DD/YYYY(+1) AUGUST/YYYY 4

1. PREMIUM WITH AUGUST BILLING IS PAID BY COMPANY ON THE 09/DD/YYYY OPERATIONS REPORT.

2. COMPANY HAS MADE COLLECTIONS OF AUGUST PREMIUM WHICH ARE REFLECTED IN THE PAIDS ON THE OPERATIONS REPORT. THIS RESULTS IN A NEGATIVE PREMIUM DUE (COLUMN A).

3. COMPANY HAS MADE ADDITIONAL COLLECTIONS OF AUGUST PREMIUM.

4. FIRST ANNUAL OPERATIONS REPORT. All PREMIUM DUE EVEN IF NOT COLLECTED BY THE COMPANY. IF NO DEFERRALS, THERE WILL BE NO PREMIUM DUE WORKSHEET NECESSARY.

2nd Draft February 23, 2010 RMA-Appendix III 6- 5

INSTRUCTION GUIDE FOR FUNDS TRANSFER DEPOSIT MESSAGES TO TREASURY

All Government agencies must provide specific information to their depositors so that a funds transfer deposit message can be transmitted to the Department of the Treasury (Treasury). Likewise, the depositors must communicate this information to the bank sending the funds transfer. The funds transfer deposit message format is included within this appendix. A narrative description of each field on the funds transfer deposit message follows:

Field Content

1 RECEIVER-DFI# - The Treasury Department's ABA number for deposit-messages is 021030004. This number should be entered by the sending bank for all deposit messages sent to the Treasury.

2 TYPE-SUBTYPE-CD - The type and subtype code will be provided by the sending bank.

3 SENDER-DFI# - This number will be provided by the sending bank.

4 SENDER-REF# - The sixteen character reference number is inserted by the sending bank at its option.

5 AMOUNT - The transfer amount must be punctuated with commas and decimal point; use of the "$" is optional. This item will be provided by the depositor.

6 SENDER-DFI-NAME - This information is automatically inserted by the Federal Reserve Bank.

7 RECEIVER-DFI-NAME - The Treasury Department's name for deposit messages is "TREAS NYC." This name should be entered by the sending bank.

8 PRODUCT CODE - A product code of "CTR" for customer transfer should be the first data in the RECEIVER-TEXT field. Other values may be entered, if appropriate, using the ABA's options. A slash must be entered after the product code.

9 AGENCY LOCATION CODE - THIS ITEM IS OF CRITICAL IMPORTANCE. IT MUST APPEAR ON THE FUNDS TRANSFER DEPOSIT MESSAGE IN THE PRECISE MANNER AS STATED TO ALLOW FOR THE AUTOMATED PROCESSING AND CLASSIFICATION OF THE FUNDS TRANSFER MESSAGE TO THE AGENCY LOCATION CODE OF THE APPROPRIATE AGENCY. The agency location code (ALC) refers to three-, four-, or eight-digit numeric symbols used to identify Government departments and agencies (e.g., accounting stations, disbursing and collecting offices). The agency's unique code must be specified in the funds transfer message in order for the funds to be correctly classified to the respective agency. The ALC identification sequence includes the beneficiary code field tag, BNF-, and identifier code,/AC-, followed by the appropriate ALC number. These three components must be in the following format:

BNF-/AC-nnn 3-digit ALC -OR- BNF-/AC-nnnn 4-digit ALC -OR- BNF-/AC-nnnnnnnn 8-digit ALC

The ALC identification sequence can, if necessary, begin on one line and end on the next line; however, the field tag "BNF-" must be one line and cannot contain any spaces.

2nd Draft February 23, 2010 RMA-Appendix III 7 - 1

10 THIRD PARTY INFORMATION - The appropriate information to identify the reason for the funds transfer should be provided by the agency to the depositor. The originator to Beneficiary Information field tag "OBI-" is used to signify the beginning of the free-form third party text. The field tag "OBI-" must be on the same line and cannot contain any spaces. The field tag is placed following the ALC identification sequence and preceded by a space. An example of this data line using the 8-digit ALC would be as follows:

BNF-/AC-nnnnnnnn OBI

It is important to note that the length of the third party text depends on how close you can place the ALC identification sequence (Field 9) to the PRODUCT CODE (Field 8). Under the Federal Reserve System's Structured Third Party Format, financial institutions have the ability to place additional information fields for their own use between field 8 and field 9. Agencies should instruct their depositors and financial institutions to limit the use of these additional fields, and attempt to adhere to the optimum format for fields 7, 8, 9, and 10. This format using an 8-digit ALC is as follows:

TREAS NYC/CTR/BNF-/AC-nnnnnnnn OBI-

The optimum format, shown above will allow 219 character positions of information following the "OBI-" indicator. The information that is constant for all agencies is shown in the Funds Transfer Deposit Message Format within this appendix. This includes the RECEIVER-DFI# (FIELD 1), the RECEIVER-DFI-NAME (FIELD 7) and the PRODUCT CODE (FIELD 8). In addition to these constant fields, the agency must provide fields 9 and 10 to their depositors and the depositor must provide field 5 to the sending financial institution.

The depositor should inform the financial institution that sends the funds transfers to Treasury to use due care and ensure that all information is provided in the prescribed format. Failure to provide the information in the prescribed format may cause a delay in the notification of the funds transfer to the agency.

A sample of a funds transfer deposit message to Treasury is included within this appendix.

021030004 (2)

(3) (4) (5)

(6)

/ (7) (8)

TREAS NYC/CTR/ (9) BNF-/AC-nnnnnnnn OBI- (10)

2nd Draft February 23, 2010 RMA-Appendix III 7 - 2

ESCROW REGISTER REINSURED COMPANY NAME ESCROW ACCOUNT #99999 01/01/XXXX HH:MM

Total Requested Amount 21,000.00 Previous Requested Amount .00 Receivable Amount .00 Payment Amount 21,000.00

Policy Issuing Policy Claim Requested Previous Payable State Company Number Name Number Amount Amount Amount 02 500 123456 Producer 1 1111 1,000.00 0.00 1,000.00 02 500 234567 Producer 2 2222 2,000.00 0.00 2,000.00 02 500 345678 Producer 3 3333 3,000.00 0.00 3,000.00 02 500 456789 Producer 4 4444 4,000.00 0.00 4,000.00 02 500 678901 Producer 5 5555 5,000.00 0.00 5,000.00

Previous Y-T-D YYYY Total 74,000.00 Reinsurance Year YYYY Total 15,000.00 Cumulative Y-T-D Total 89,000.00

02 500 456789 Producer 6 6666 6,000.00 0.00 6,000.00

Previous Y-T-D YYYY(+1)Total10,000.00 Reinsurance Year YYYY(+1)Total 6,000.00 Cumulative Y-T-D Total 16,000.00

2nd Draft February 23, 2010 RMA-Appendix III 8 - 1

ESCROW REGISTER REINSURED COMPANY NAME ESCROW ACCOUNT #99999 MM/DD/YYYY HH:MM

Total Requested Amount 21,000.00 Previous Requested Amount .00 Receivable Amount .00 Payment Amount 21,000.00

Previous Y-T-D Total 74,000.00 Reinsurance Year YYYY Total 15,000.00 Cumulative Y-T-D Total 89,000.00

Previous Y-T-D Total 10,000.00 Reinsurance Year YYYY(+1)Total 6,000.00 Cumulative Y-T-D Total 16,000.00

2nd Draft February 23, 2010 RMA-Appendix III 8 - 2

FCIC LIVESTOCK OPERATIONS REPORT PAGE: 1 RO XX REINSURANCE YEAR - YYYY LRCP001-C Reinsurance Company Name MONTHLY C/O MGA

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY

======PREMIUM SUBSIDY LOSSES

LIVESTOCK 9,999,999 999,999 999,999

======

DUE COMPANY DUE FCIC NET A & O SUBSIDY (99.9%) 999,999.99 COMPANY PREVIOUS PAYMENT 999,999.99 FCIC INTEREST PAID 999,999.99 ADJUSTMENTS DUE COMPANY 999,999.99 FCIC PREVIOUS PAYMENT 999,999.99 FCIC INTEREST /PENALTY 999,999.99 ADJUSTMENTS DUE FCIC 999,999.99 LIVESTOCK SETTLEMENT 999,999.99 999,999.99 SUBTOTAL 999,999.99 999,999.99 BALANCE DUE COMPANY/FCIC 999,999.99 999,999.99

======

CERTIFIED CORRECT

______

NAME TITLE DATE

NOTE: ANY FALSE CERTIFICATION MADE TO THE CORPORATION MAY SUBJECT THE MAKER TO CRIMINAL AND CIVIL PENALTIES AS PROVIDED

IN 18 U.S.C. 287,1001; 31 U.S.C. 3729 AND 3730

2nd Draft February 23, 2010 RMA-Appendix III 9 - 1

FCIC LIVESTOCK DETAIL REPORT PAGE:1 RO XX REINSURANCE YEAR - YYYY LADR001 Reinsurance Company Name MONTHLY C/O MGA.

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY ======CROP ST CO POLICY YR NAME PREMIUM SUBSIDY LOSSES ======

XX 999 999999 YYYY DOE, J 6,613 3,637 0 XX 999 999999 YYYY DOE, JO 13,092 7,725 0 XX 999 999999 YYYY DOE, JON 3,394 2,002 0 XX 999 999999 YYYY DOE, JOHN 8,626 5,089 0 XX 999 999999 YYYY DOE, JESS 1,008 554 0 XX 999 999999 YYYY DOE, SALLY 4,270 2,518 0 XX 999 999999 YYYY DOE, JAN 1,762 1,040 0 XX 999 999999 YYYY DOE, JANE 3,304 1,949 0 XX 999 999999 YYYY DOE, JODY 2,664 1,572 0 XX 999 999999 YYYY DOE, RICH 2,121 1,251 0 XX 999 999999 YYYY DOE, JACK 707 417 0 XX 999 999999 YYYY DOE, BOB 8,354 4,930 0

TOTAL 55,915 32,684 0

2nd Draft February 23, 2010 RMA-Appendix III 9 - 2

LIVESTOCK SETTLEMENT REPORT PAGE 1 RO XX REINSURANCE YEAR YYYY LIVPRT01 Reinsurance Company Name C/O MGA

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY

FUND TOTAL PRODUCER LOSS GAIN PREMIUM PREMIUM SUBSIDY LOSSES RATIO LOSS

COMMERCIAL LRP 9,999,999 9,999,999 999,999 999,999 41.1 COMMERCIAL LGM .0 PRIVATE MARKET LRP .0 PRIVATE MARKET LGM .0 ******************************************************************************************************************************** NET BOOK TOTALS 9,999,999 9,999,999 999,999 999,999 41.1

COMMERCIAL 9,999,999 9,999,999 999,999 999,999 41.1 PRIVATE MARKET .0 ******************************************************************************************************************************** RETAINED TOTALS 9,999,999 9,999,999 999,999 999,999 41.1

COMMERCIAL 9,999,999 9,999,999 999,999 999,999 41.1 PRIVATE MARKET .0 ******************************************************************************************************************************** COMPANY SHARE AFTER STOP LOSS 9,999,999 9,999,999 999,999 999,999 41.1 999,999

COMMERCIAL 9,999,999 9,999,999 999,999 999,999 41.1 PRIVATE MARKET .0 ******************************************************************************************************************************** FCIC SHARE 9,999,999 9,999,999 999,999 999,999 41.1

DUE COMPANY DUE FCIC SUBSIDY 999,999 LOSSES DUE FROM FCIC 999 PREMIUM DUE FCIC 9,999 REINSURANCE PREMIUM DUE FCIC 99,999 ******************************************************************************************************************************** SUBTOTAL 999,999 99,999 ******************************************************************************************************************************** LIVESTOCK ADJUSTMENT 999,999

2nd Draft February 23, 2010 RMA-Appendix III 9 - 3

Weekly Transaction Cut-off Dates

July 2, 2010 January 7, 2011 – Accounting Cutoff July 9, 2010 – Accounting Cutoff January 14, 2011 July 16, 2010 January 21, 2011 July 23, 2010 January 28, 2011 July 30, 2010 February 4, 2011 August 6, 2010 – Accounting Cutoff February 11, 2011 – Accounting Cutoff August 13, 2010 February 18, 2011 August 20, 2010 February 25, 2011 August 27, 2010 March 4, 2011 September 3, 2010 March 11, 2011 – Accounting Cutoff September 10, 2010 – Accounting Cutoff March 18, 2011 September 17, 2010 March 25, 2011 September 24, 2010 April 1, 2011 October 1, 2010 April 8, 2011 – Accounting Cutoff October 8, 2010 – Accounting Cutoff April 15, 2011 October 15, 2010 April 22, 2011 October 22, 2010 April 29, 2011 October 29, 2010 May 6, 2011 – Accounting Cutoff November 5, 2010 May 13, 2011 November 12, 2010 – Accounting Cutoff May 20, 2011 November 19, 2010 May 27, 2011 November 26, 2010 June 3, 2011 December 3, 2010 June 10, 2011 – Accounting Cutoff December 10, 2010 – Accounting Cutoff June 17, 2011 December 17, 2010 June 24, 2011 December 24, 2010 December 31, 2010

2nd Draft February 23, 2010 RMA-Appendix III 160 - 1

Fund Cutoff and LRR Dates

Mod Sales Sales Closing Fund Fund Fund Closing Date Week Day Cutoff Week Cutoff Week Day Cutoff Date LRR 1% Day LRR 3% LRR 6% 7/1/2010 Saturday 7/30/2010 Monday 9/3/2010 Wednesday 10/1/2010 7/31/2010 8/2/2010 Wednesday 9/3/2010 Friday 10/1/2010 Sunday 11/5/2010 8/15/2010 8/16/2010 Wednesday 9/17/2010 Friday 10/15/2010 Sunday 11/19/2010 8/31/2010 Thursday 10/1/2010 Saturday 10/29/2010 Monday 12/3/2010 9/30/2010 Saturday 10/29/2010 Monday 12/3/2010 Wednesday 12/31/2010 10/31/2010 11/1/2010 Wednesday 12/3/2010 Friday 12/31/2010 Sunday 2/4/2011 11/20/2010 11/22/2010 Wednesday 12/24/2010 Friday 1/21/2011 Sunday 2/25/2011 11/30/2010 Thursday 12/31/2010 Saturday 1/28/2011 Monday 3/4/2011 12/31/2010 Sunday 2/4/2011 Tuesday 3/4/2011 Thursday 4/1/2011 1/31/2011 Wednesday 3/4/2011 Friday 4/1/2011 Sunday 5/6/2011 2/1/2011 Thursday 3/4/2011 Saturday 4/1/2011 Monday 5/6/2011 2/15/2011 Thursday 3/18/2011 Saturday 4/15/2011 Monday 5/20/2011 2/28/2011 Wednesday 4/1/2011 Friday 4/29/2011 Sunday 6/3/2011 3/15/2011 Thursday 4/15/2011 Saturday 5/13/2011 Monday 6/17/2011 3/31/2011 Saturday 4/29/2011 Monday 6/3/2011 Wednesday 7/1/2011 5/1/2011 5/2/2011 Wednesday 6/3/2011 Friday 7/1/2011 Sunday 8/5/2011 5/31/2011 Thursday 7/1/2011 Saturday 7/29/2011 Monday 9/2/2011 7/1/2011 Sunday 8/5/2011 Tuesday 9/2/2011 Thursday 9/30/2011 7/31/2011 8/1/2011 Wednesday 9/2/2011 Friday 9/30/2011 Sunday 11/4/2011

2nd Draft February 23, 2010 RMA-Appendix III 161 - 1

Acronyms______

A&O Administrative & Operating Expense ACT The Federal Crop Insurance Act (7 U.S.C. 1502 et seq.) ADM Actuarial Data Master AFS Actuarial Filing System AGR Adjusted Gross Revenue (Whole-farm coverage based on producer’s Schedule F Adjusted Gross Revenue-Lite (Whole-farm coverage based on producer’s Schedule AGR-L F using less commodities to qualify AIP Approved Insurance Provider APDD Actuarial & Product Design Division APH Actual Production History (producers records for developing coverage) ARD Acreage Reporting Date ARPA Agricultural Risk Protection Act (also known as the Crop Insurance Act of 2000) CAT Catastrophic Risk Protection CEO Coverage Enhancement Option CIH Crop Insurance Handbook CIMS Comprehensive Information Management System CLU Common Land Unit CO RMA Compliance Office COB Close of Business CY Crop Year DQS Data Quality Section DY Determined Yields eDAS Electronic Data Acceptance System EFT Electronic Funds Transfer FAOB Financial & Accounting Operations Branch FCIC Federal Crop Insurance Corporation (RMA) FIPS Federal Information Processing Standards FSA Farm Service Agency FY Fiscal Year (i.e., Oct. 1, 2010 to Sep 30, 2011 is the 2011 fiscal year) GRP Group Risk Plan IRM Information Resources Management IS Insurance Services ITS Ineligible Tracking System KCO RMA Kansas City Office LAC Loss Adjustment Contractor LAM Loss Adjustment Manual LAN Local Area Network

LGM Livestock Gross Margin LRP Livestock Risk Protection LRR Late Reporting Reduction MGA Managing General Agency MPCI Multiple Peril Crop Insurance MY Master Yields NAD National Appeals Division NASS National Agricultural Statistics Service NCIS National Crop Insurance Services 2nd Draft February 23, 2010 RMA-Appendix III 162 - 1

PAAD Product Analysis and Accounting Division PASD Product Administration and Standards Division PASS Policy Acceptance and Storage System PHTS Policyholder Tracking System PIC Policy Issuing Company PM Product Management PRD Production Reporting Data PSR PASS Status Report RAS Reinsurance Accounting System RMA Risk management Agency RME Risk Management Education RSD Reinsurance Services Division RO RMA Regional Office RY Reinsurance Year SBI Substantial Beneficial Interest SBOB Summary Book of Business SCD Sales Closing Date SF Standard Form (prefix to form numbers) SPOI Special Provisions of Insurance SRA Standard Reinsurance Agreement T-Yield Transitional Yield UCM Underwriting Capacity Manager USDA United States Department of Agriculture WA Written Agreement WDC RMA Washington, DC WUA Written Unit Agreement XML Extensible Markup Language

2nd Draft February 23, 2010 RMA-Appendix III 162 - 2

RED-LINED VERSION OF 2011 SRA APPENDIX III

Note: NCIS’ response to the 1st draft of A-III included suggested editorial changes to make A-III more consistent with the remainder of the SRA. Those editorial revisions included the use of terms “the Company” instead of “AIP” and “eligible crop insurance contract” instead of “policy”. NCIS also made numerous corrections to the Table of Contents that are not entirely consistent with that draft. To allow for easier consideration of the more substantive recommendations nd contained herein, these editorial revisions are not included in this 2 draft A-III response. Formatted: Superscript However, NCIS believes the standardization of these terms and editorial revisions should be made in any final draft of this Appendix.

Also, because of pending design and operational decisions under the Information Technology Modernization (ITM) project that will impact the content of this Appendix for the 2011 reinsurance year, the attached comments are not inclusive of any design and operational decisions currently pending, including, but not necessarily limited to:

 all ITM input and output record formats, including ADM and “ICE” file formats, as potential revisions are ongoing;  all ITM processes which will use “legacy” systems for 2011 and their replacement ITM components for the 2012 reinsurance year;  written agreement validations for the 2011 reinsurance year, and the subsequent replacement with an RO Exceptions reporting and validation process for the 2012 reinsurance year;  any “white paper” that is pending publication, as well as any “white paper” that is currently published for industry comment;  any “ITM Issues Log” entry that is pending a decision by RMA and any subsequent Industry response to RMA’s recommended resolution of that issue;  creation of a “Type 26” record as referenced in various ITM publications;  any revision of the information contained herein arising from the publication of the Common Basic and Crop Insurance Policy provisions for the 2011 reinsurance year; and  any issue that would arise from the design and operational decisions made in response to any of the above items coming to resolution.

In addition, it is noted that all Exhibits highlighted by RMA herein were not provided with this draft issuance, and these comments are not inclusive of those omitted exhibits. Furthermore, some exhibits contained herein are subject to ITM design decisions referenced above, and these comments are not inclusive of those exhibits.

AIPs reserve the right, in the spirit of good faith negotiations as indicated on Page 2, to address ITM design decisions that could substantively impact the ultimate data reporting requirements that will be included in this Appendix throughout the period of negotiations of the 2011 SRA.

United States Department of Agriculture

Federal Crop Insurance Corporation RISK MANAGEMENT

Deleted: POLICY ACCEPTANCE & AGENCY Appendix III to the STORAGE SYSTEM Standard Reinsurance

Agreement and the Livestock

Price Reinsurance Agreement Risk Management Agency

2011 REINSURANCE YEAR

Product Analysis Formatted: Strikethrough and Accounting Division

APPENDIX III

RISK MANAGEMENT AGENCY

KANSAS CITY, MO

TITLE: RISK MANAGEMENT AGENCY NUMBER: APPENDIX III TO THE POLICY ACCEPTANCE AND STORAGE STANDARD REINSURANCE AGREEMENT SYSTEM EFFECTIVE DATE: July 1, 2010 ISSUE DATE: July 1, 2010 SUBJECT: OPI: Product Analysis and Accounting Division

Provides the standards, instructions and APPROVED: June 30, 2010 information for reporting Approved Insurance Provider (AIP) data to the Risk Management Agency/Federal Crop Insurance Corporation Deputy Administrator, Product Management

Reason for Issuance

This Appendix is being issued to provide standards, instructions and information for electronic data Deleted: handbook reporting of policyholder, commodity and other information submitted by AIPs as required by the Standard Reinsurance Agreement, Livestock Price Reinsurance Agreement or other Risk Management Agency (RMA) policy and procedures.

Agreement to Negotiate In Good Faith

RMA and AIPs recognize that joint efforts for ongoing design and development of RMA’s Information Technology Modernization (ITM) project is underway, and that design decisions arising over the life of the ITM project could impact reporting requirements contained herein. RMA and AIPs recognize that some ITM design decisions will not be concluded by the July 1, 2010 start of the 2011 reinsurance year. RMA and AIPs will continue to make mutually agreeable ITM design decisions in the spirit of renegotiating the above reinsurance agreements for the 2011 reinsurance year, as well as to adhere to the Common Basic, Crop and Special Insurance Provisions, endorsements and related procedures that will be in effect for the 2011 reinsurance year.

RMA and AIPs further agree that potential RO Exceptions automation contemplated within the ITM project scope will be designed to achieve mutually beneficial cost efficiencies and implementation of any automated component of the various RO Exception reporting requirements will be staged over multiple reinsurance years, with those automated processes which provide the greatest mutual benefit being automated first. RMA and AIPs recognize that some facets of any current RO Exceptions reporting requirement may be automated while other facets which have no material benefit in being automated could continue to be handled under the reporting requirements in effect for that reinsurance year. RMA and AIPs agree that any new automated RO Exceptions reporting requirement will be included in the Appendix III in effect for the reinsurance year that the automated process is to be implemented.

TABLE OF CONTENTS Page No. Formatted: Superscript

Note: Please see NCIS’ response to the 1st Draft of A-III for recommended TOC changes.

Part 1 General Information and Responsibilities

1 General Information ...... 1

2 Responsibilities ...... 3

3 System Overview..………………………………………………………………………………4

4-10 (Reserved)

Part 2 Organizational and Formatting Standards

11 PASS Submission Requirements ...... 7

12 Telecommunications ...... 20

13 Processing Considerations ...... 22

14 PASS Reports ………………………………………………………………………………..40

15-20 (Reserved)

Part 3 Accounting

21 Accounting Processing Considerations...... 42

22 Accounting Reports ...... 47

23 Escrow Reconciliation… ……………………………………………………………………..52

24 Application of Paids and Loss Credits…………………………………………………………55

25 Full Book Reconciliation……………………………………………………………………….56

26-30 (Reserved)

Exhibits

1 FCIC Operations Report Monthly Operations Report FCIC Installment Report Annual Settlement Operations Report FCIC Fee Report FCIC Accounting Detail Report (Excluding CAT)

2nd Draft February 23, 2010 RMA-Appendix III TC1

P/CR Memo Reject Report Interest Calculation Examples 2 Detail Accounting and Administrative Fee Reports CAT Coverage Fees Reports……………………………………………….……..……3-1 Additional Coverage Administrative Fee Summary Report……….……………...... 3-4 3 Reinsurance Run Reports FCIC Reinsurance Run………………………..………… 4-1 4 Reconciliation Reports Monthly Reconciliation Reduction Worksheet………………………..…………….. 5-1 Annual Reconciliation Reduction Worksheet……………………………..……...... 5-2 Discrepancies of Premium by Policy……………………………………………..… 5-3 Discrepancies of Losses by Policy…………………………………………………... 5-4 Discrepancies of Paids by Policy…………………………………………….………...5-5 Discrepancies of Loss-Credits by Policy………………………………………………5-6 5 FCIC Administrative Reduction Reports Administrative Reduction Report – Late Filed Sales………………………………… 6-1 6 Premium Due Worksheets Premium Due Without Payments Worksheet………………………………………… 7-1 Premium Due Worksheet……………………………….…………………………..…7-3 7 Instruction Guide for Funds Transfer, Deposit, Message to Treasury……………………… 8-1 8 Escrow Register……………………………………………………………….……………… 9-1 9 RAS Summary Reports – Adjustments for Livestock FCIC Livestock Detail Report……………………….…………………..…………...10-1 Monthly Livestock Operations Report…………………………………………….…10-2 Livestock Settlement Report……………………………..………………………..... 10-3 10 Crop Year 2010 Pilot Crops……...... ………………………………………….... 11-1

PASS Record Descriptors (Note PASS Record Descriptors are available on the ITM extranet site and can be accessed by AIP ITM team members as needed.) They will not be recreated for purposes of this handbook based on the ITM PASS release schedule.

05 CIMS Request Record – Type 5………………………………………………………...... … 5-0 CIMS Status Codes Exhibit………………………………………………………….……... 5-1 09 Fund Designation Record – Type 9…………………………..……………………………... 9-0 Fund Designation Guidelines Exhibit……………………………………………….…….... 9-1 10 Policy Record – Type 10………………………………………….……………………..….. 10-0 Entity and ID Type Table………………………………..……………………………….…. 10-1 11 Acreage Record – Type 11…………………………………………………………….…... 11-0 Guarantee Reduction Percents………………………………………………..………..….. 11-1 Malting Barley PASS Edit Requirements………………………………………….…..…….11-1 DAS `ZERO Acreage Reporting Requirements……………………………..………..…... 11-1 First Crop Processing (Planted Acreage)…………………………………………….…..…..11-1 2010 Rate Class………………………………………………………………………..……. 11-2 2010 Map Area…………………………………………………………………………..….. 11-3 Dollar Amount of Insurance……………………………………………………………..….. 11-4 Guaranteed Reduction Factors for Cherries……………………………………….……..…..11-5 Sheller Warehouse Codes For Peanuts…………………………..……………………....….. 11-5 Insurance Plan Codes…………………………………………………………………….…. 11-6 Crops Eligible for BU……………………………………………………………….….…… 11-7 Written Agreement Edits and PASS Validations………………………………….………... 11-8

2nd Draft February 23, 2010 RMA-Appendix III TC2

2010 Filing Year Option Codes……………….…………………………………….………. 11-9 Crops Requiring Zeros for Date Planted………..………………………………………....…11-10 Type: 11 Calculations………………..……………………………………………………….11-11 Yield Requirements / Edit……………………………………………………….……....…..11-12 Unit Premium Adjustment Factor and Producer Premium Percentage Table….……………11-13 Codes for FCIC Approved Supplemental and Reinsured Policies……………………….….11-14 12 Payment Record – Type 12………………….………....…………………………….………12-0 13 Inventory Value Record – Type 13…………………..…...... ……..…….…… 13-0 14 Insurance in Force Record – Type 14…….………………………………………………..…14-0 Crops Which Allow Multiple Type 14….……………………………………..…….…….…14-1 Reserved…………………………………………………………………………..…...... 14-2 Duplicate Edits………………………………………………………………..……...... 14-3 Reserved………………………………………………………………………..…...... 14-4 Crops Where CAT Coverage Is Not Available………………………………………..... 14-5 15 Yield Record – Type 15…………………………………………………………..…… .. 15-0 Yield Type Edits…………………………………………………………………..…... .. 15-1 Yield Limitations Edits……………………………………………………………….……. 15-2 Maximum Yield Allowed……………………………………………………………..….… 15-3 Crop Requiring A Type 15 (Yield) Record…………………………………………….….. 15-4 Indexed Income Protection Yields…………………………………………………………..15-5 APH Crops That No Longer Have Capped Yields………………………………………... 15-6 16 Reserved………………………………………………...... 16-0 17 Land Identifier Record – Type 17…………….…………………………………………..… 17-0 Crop /Plan Codes Not Requiring A 17 Record…………………………………………….. 17-1 Legal Land ID Validation………………………………………………………………….. 17-2 Latitude/Longitude……………………………………………………………………….… 17-3 18 – 19 Reserved………………………………………………………………………… 18-0 Thru 19-0 20 Loss Total Record – Type 20………………………………………………………………. 20-0 Record 20 Exhibit………………………………………………………………………….. 20-1 21 Loss Line Record – Type 21……………………………………………………………….. 21-0 First Crop Processing (Planted Acreage)…………………………………………………... 21-1 Cause of Loss Codes by Code………………………………………………...…………... 21-2 Cause of Loss Codes……………………………………………………………………….. 21-3 Stage Code Definitions………………………………………………………………..…… 21-4 Stage Code by Crop………………………………………………………………… ……. 21-5 Simplified Claims Processing…………...……………………………………………….... 21-6 Self- Certified Replant Claims……………..…………………………………………..…….21-6 Prevented Plating Guarantee Percentage Table………………………………………..…… 21-6 Replant Maximum / Minimum Table…...………………………………………………..... 21-7 Stage Percent, Price Percent and Price Election Factors………………………………....… 21-8 Reserved…………………………………..……………………………………………....….21-9 Type 21: Calculations….…………………………………………………………..………...21-10 22 Inventory Loss Record - Type 22………..…………………………………………….….… 22-0 Type 22: Nursery Calculations …………..……………………………………………….… 22-0 Type 22: Cultivated Claims Calculations………………………………………….………. 22-1 Nursery Optional Unit Plant Type Code…...……………………………………………….. 22-2 Cause of Loss Codes by Crop………………………………………………………………..22 - 3 23–24 Reserved……………………………………………………………………………23-0 Thru 24-0 25 Settlement / Arbitration Record – Type 25……………………………………………...... 25-0

2nd Draft February 23, 2010 RMA-Appendix III TC3

26 Reserved………………………………………………………………………………...... 26-0 28-47 Reserved………………………………………………………………………… . 28-0 Thru 48-0 49 Delete Records – Type 49……………………………………………………………… ...... 49-0 51 Conflict of Interest Policy Reporting Record…………………………………………...... 51-0 54 Agency / Company Employee Data Record…………………………………………… ...... 54-0 55 Agent Data – Type 55…………………………………………………………………...... 55-0 56 Loss Adjuster Data – Type 56…………………………………………………………...... 56-0 57 Quality Control Reporting Record – Type 57…………………………………………...... 57-0 58 Notice of Loss Record…………………………………………………………………...... 58-0 59 Reserved………………………………………………………………………………… ...... 59-0 60 Ineligible Producer Input Record – Type 60……………………………………………...... 60-0 Ineligible Transaction Flag Values……………………………………………………… ..... 60-1 60e Ineligible Producer Error Record – Type 60e……………………………………….…...... 60e-0 Ineligible Tracking System Error Codes………………………………………………...... 60e-1 61 Ineligible Producer Output Record – Type 61…………………………………………...... 61-0 Ineligible Status Flag Values…………………………………………………………… ...... 61-1 62–64 Reserved……………………………………………………………………… .... 62–0 Thru 64-0 65 CAT Fee Receivable Record……………………………………………………………...... 65-0 66-69 Reserved……………………………………………………………………… .... 66–0 Thru 69-0 70 Reverse 70 Detail Record – Type 70…………………………………………………… ...... 70-0 71 Reverse 71 Trailer Record – Type 71…………………………………………………...... 71-0 72-80 Reserved………………………………………………………………………… . 72-0 Thru 80-0 81 Policy Holder Tracking Experience Inquiry – Type 81 Output Format………………… .... 81- 0 82-96 Reserved…………………………………………………………………………..82-0 Thru 96-0 97 2010 Flow Chart………………………………………………………………………… ..... 97-0 98 Output Error Format for `.err……………………………………………………………...... 98-0 98-1 Rec 9 Output Format for `.acp, .fun, .rej, .sus’………………………………………… ..... 98-1 98-2 Rec 10 Output Format for `.acp, .esc, .exp, .ex5, .rej, .sus’…………………………...... 98-2 98-3 Rec 11 Output Format for ` .acp, .rej, .sus……………………………………………… ..... 98-3 98-4 Rec 12 Output Format for `.acp, .rej, .per, .sus………………………………………...... 98-4 98-5 Rec 13 Output Format for `.acp, .rej. .sus’……………………………………………...... 98-5 98-6 Rec 14 Output Format for `.acp, .exp, .ex5, .rej, .sus…………………………………...... 98-6 98-7 Rec 15 Output Format for `.acp, .rej, .sus……………………………………………...... 98-7 98-9 Rec 20 Output Format for `.acp, .esc, .rej, .sus………………………………………...... 98-9 98-10 Rec 21 Output Format for `.acp, .esc .rej, .sus………………………………………. .... 98-10 98-11 Rec 22 Output Format for `.acp, rej, .sus’…………………………………………….. ... 98-11 98-12 Rec 25 Output Format for `.acp. .rej, .sus……………………………………………...... 98-12 98-13 Rec 27 Output Format for `.acp, .rej, .sus……………………………………………...... 98-13 98-14 Rec 49 Output Format for `.acp, .rej, .sus……………………………………………...... 98-14 98-15 Rec 57 Output Format for `.acp, .rej, .sus……………………………………………...... 98-15 98-16 Rec 58 Output Format for `.acp, rej, .sus……………………………………………...... 98-16 99a FCIC Crops (by Crop Code /Alphabetical)……………………………………………...... 99a-0 99b Rounding Rules…………………………………………………………………………. .... 99b-0 99c Removed from Appendix III – Information available in Crop Ins. Handbook………… .... 99c-0 99d Field Definitions………………………………………………………………………...... 99d-0 99e FIPS State Code………………………………………………………………………...... 99e-0 99f Insurance Plan Codes…………………………………………………………………...... 99f-0

100 – 109 Reserve

2nd Draft February 23, 2010 RMA-Appendix III TC4

eDAS Exhibits 111 Adjuster…………………………………………………………………………. .... 111-0 112 Agent……………………………………………………………………………. .... 112-0 113 Employee………………………………………………………………………...... 113-0 116 Reviewer………………………………………………………………………… ... 114-0 118 Conflict………………………………………………………………………….. ... 115-0 119 Livestock Crop Policy……………………………………………………………... 119-0 121 Entity…………………………………………………………………………….. ... 121-0 Entity /SBI ID Type Table……………………………………………………….. .. 121-1 122 Policy…………………………………………………………………………….. .. 122-0 123 AGR/AGR-L Crop Policy………………………………………………………..... 123-0 Coverage Level Eligibility……………………………………………………….. .. 123-1 124 Payment…………………………………………………………………………..... 124-0 126 SBI……………………………………………………………………………….. .. 126-0 130 Livestock Fund…………………………………………………………………...... 130-0 131 AGR/AGR-L ……………………………………………………………………. ... 131-0 135 LRP Premium…………………………………………………………………….... 135-0 LRP Premium Calculations………………………………………………………... 135-1 LRP Indemnity…………………………………………………………………… .. 135-2 LRP Indemnity Calculations……………………………………………………… . 135-3 140 LGM Premium……………………………………………………………………. . 140-0 LGM Premium Calculations……………………………………………………… . 140-1 LGM Indemnity………………………………………………………………….. .. 140-2 LGM Indemnity Calculations…………………………………………………….. . 140-3 150 Disbursement (of Loss Payment)…………………………………………………. . 150-0 151 AGR/AGR-L Farm Report / Premium……………………………………………. . 151-0 AGR/AGR- L Liability/Premium Calculations…………………………………… 151-1 AGR/AGR-L Indemnity ………………………………………………………….. 151-2 AGR/AGR-L Indemnity Calculations………………………………... . ………….151-3 160 Weekly Transaction Cut-off Dates………………………………………………....160-0 161 Fund Cutoff and LRR Dates………………………………………………...…..…161-0 162 Acronyms……………………………………………………………………….….162-0

2nd Draft February 23, 2010 RMA-Appendix III TC5

Part 1 General Information and Responsibilities

1 General Information

A. Purpose and Objective

This Appendix provides standards, procedure and instructions for reporting AIP data to RMA/FCIC. Deleted: handbook The objectives include, but are not limited to:

 providing a means of validating data to provide reasonable assurance that reimbursements are made based on accurate and timely information.

 maintaining detailed contract information at RMA

 enhancing the quality and availability of data at all levels

B. Source of Authority

Federal programs enacted by Congress and the regulations and policies developed by RMA, USDA and other Federal agencies with applicable regulatory control provide the:

 Authority for program and administrative operations

 Origin for RMA calculation of A&O subsidy, reinsurance and risk sharing.

Authority for managing the Policy Acceptance and Storage System, eDAS and automated RO Exceptions is authorized by:

 Standard Reinsurance Agreement (SRA) and supporting Appendices

 Livestock Price Reinsurance Agreement (LPRA)

 RMA issued procedures

 Regulations promulgated under the:

 Federal Crop Insurance Act

 System of Records Notice

 Basic provisions and endorsements

 Debt Collection and Improvement Act Formatted: Indent: Left: 0.5", No bullets or numbering, Tab stops: Not at 0.5" Formatted: Indent: Left: 1.25", No bullets or numbering

2nd Draft February 23, 2010 RMA-Appendix III 1

1 General Information (Continued)

C. Related Handbooks and Reference Materials

This table references related handbooks/reference materials and their relation/purpose.

Related Handbooks/ Relation/Purpose Reference Material Provides cession limits, maximum premium volume, states in which the company is authorized to write business, and other Appendix II to the SRA selected criteria required by the SRA . Appendix IV to the SRA Provides requirements for monitoring the quality control program Crop Insurance Handbook Provides procedures for reporting information from producers Document and Provides standard forms and procedures for collecting information Supplemental from producers Standards Handbook Loss Adjustment Standards Handbook Provides collection and reporting procedures for claim information Written Agreement Provides procedures for modifying terms and conditions of the ADM Handbook or other issued policy and procedure Provides procedures for identification and tracking of ineligible Ineligible Handbook producers Underwriting Guides All underwriting guides published on RMA’s website (www.rma.usda.gov) Other Program Handbooks All other program handbooks and standards published on RMA’s and Standards website (www.rma.usda.gov) 4-RM Provides procedures and guidance to FSA State and County Offices, RMA, and Approved Insurance Providers for improving Federal Crop Insurance Program compliance and integrity as required by the Agricultural Risk Protection Act of 2000 (ARPA) Bulletins Applicable bulletins and informational memorandum published on RMA’s website (www.rma.usda.gov)

Any conflict between the above documents will be resolved by the Hierarchy of Controlling Documents Formatted: Indent: Left: 0.5", First line: 0" in Exhibit 11.

D. Issuances and Revisions

1. This appendix will be issued annually reflecting detailed reporting requirements for eligible crop insurance contracts and other supporting information applicable to each Reinsurance Year in accordance with the SRA/LPRA and Appendices. A DRAFT will be issued by February 7th Deleted: May 10 preceding the reinsurance year for comment, including general PASS requirements, proposed or major processing enhancements, known policy and procedural changes, fund designation requirements and LRR determination process. AIPs will have 21 days to comment to the draft. Deleted: or LFA The approved Appendix III will be issued by March 15, preceding the reinsurance year, and will Deleted: June 30 be approved quarterly, as needed. a. Appendix III will not contain any reserved, optional, no edit or other “placeholder” fields.

2nd Draft February 23, 2010 RMA-Appendix III 2

b. RMA must explain to AIPs their reason for rejecting AIP comments to any proposed changes or subsequent new reporting requirement (similar to the proposed rule comment process). Formatted: Indent: Left: 1.38", No bullets or c. Any revision to this appendix must be made in accordance with Section IV (b)(1) of the numbering SRA/LPRA. Formatted: Indent: Left: 1.5" 2. Revisions to this appendix and to PASS may become necessary after the annual release to ensure that data reported complies with the SRA, actuarial requirements, Federal regulations, crop policy provisions, and procedural changes that could not be anticipated when the annual update was released. Revisions to Appendix III will include:

a. Clarifications that do not change the format or values of the reporting requirements. Deleted: ,

b. New reporting requirements to meet the terms and conditions of the Act, FCIC regulations, and/or procedures enacted after the initial release of Appendix III, made under the terms of the SRA/LPRA.

c. Corrections to the reporting requirements to meet the existing terms and conditions of the Act, FCIC regulations, and/or procedures.

3. Any new or proposed requirements revisions will be available for comment for a period of 14 calendar days. FCIC generally will work with the AIPs in an attempt to reach consensus in determining the most efficient means of implementing revisions both prior to and subsequent to the initial release. Revisions after the initial release will be highlighted and a summary by date will be maintained. Explanation will be provided stating the reason a particular change was initiated or implemented.

a. Changes will be implemented after the accounting cut-off date following the 14 day comment period, except in situations involving material monetary impact.

4. The SRA, except as provided therein, Act, regulations in 7 C.F.R. Chapter IV, regulations and procedures listed in Section 1 B and C of this Appendix, and the applicable eligible crop insurance contract and procedures take precedence over Appendix III for servicing requirements. Any conflict between these documents will be resolved by the Hierarchy of Controlling Documents in Exhibit 11.

5. The appendix is maintained electronically via the RMA Home Page. The RMA Website address is:

http://www.rma.usda.gov/data

Click on APPENDIX III, Data Reporting Requirements.

6. Provisions for approved and draft versions of the Appendix III for multiple reinsurance years are available.

2nd Draft February 23, 2010 RMA-Appendix III 3

a. The approved version contains the current Appendix III that has been approved by FCIC.

b. The draft version contains proposed changes for review and comment.

A. Draft versions will be watermarked DRAFT and changes will be highlighted when possible.

B. AIPs will be notified of changes to the DRAFT version on the PASS Status Report and/or on the “Read me” page. Formatted: Indent: Left: 1", No bullets or D. Implementing FISMA Information Security Standards and Guidelines numbering Formatted: List Paragraph, Numbered + Level: 1 + Numbering Style: A, B, C, … + Start 1. As required by SRA Section IV (a) (4), the company is to develop, implement and maintain at: 4 + Alignment: Left + Aligned at: 0.5" + information controls and systems in a manner that is consistent with the Federal Information Indent at: 0.75" Systems Management Act (FISMA). The company may utilize existing information technology, Formatted: List Paragraph, Indent: Left: audits and security approaches currently determined by and required of the company to 0.75" demonstrate that Protected Information and records are being secured and protected from non- Formatted: List Paragraph, Numbered + Level: 1 + Numbering Style: 1, 2, 3, … + Start disclosure. But the company must engage a process designed to achieve the minimum security at: 1 + Alignment: Left + Aligned at: 0.75" + requirements for moderate-impact security objectives for each of their systems that contain Indent at: 1" protected information or interact with a federal information system. Formatted: Font color: Custom Color(RGB(31,73,125)) 2 FIPS 200, Minimum Security Requirements for Federal Information and Information Systems, Formatted: List Paragraph, Indent: Left: 1" lists the mandatory federal standards developed by NIST in response to FISMA. To comply with Formatted: List Paragraph, Numbered + Level: 1 + Numbering Style: 1, 2, 3, … + Start the federal standard, the company must derive the information system impact level for a at: 2 + Alignment: Left + Aligned at: 0.75" + moderate-impact security category in accordance with FIPS 200, and then apply the appropriately Indent at: 1" tailored set of baseline security controls in NIST Special Publication 800-53, Security Controls for Federal Information Systems and Organizations. The Company has flexibility in applying the baseline security controls in accordance with the guidance provided in Special Publication 800- 53. This allows the company to tailor the relevant security control baseline so that it more closely aligns with their mission and business requirements and environments of operation. Formatted: List Paragraph, Indent: Left: 1" 3 FIPS 200 and NIST Special Publication 800-53, in combination, help ensure that appropriate Formatted: List Paragraph, Numbered + security requirements and security controls are applied to all company systems that contain Level: 1 + Numbering Style: 1, 2, 3, … + Start at: 2 + Alignment: Left + Aligned at: 0.75" + protected information or interact with federal information systems. An organizational assessment Indent at: 1" of risk validates the initial security control selection and determines if any additional controls are needed to protect organizational operations (including mission, functions, image, or reputation), organizational assets, individuals, other organizations, or the Federal Crop Insurance program. Formatted: List Paragraph, Indent: Left: 1" The resulting set of security controls establishes a level of security due diligence for the Formatted: List Paragraph, Numbered + Level: 1 + Numbering Style: 1, 2, 3, … + Start Company. at: 2 + Alignment: Left + Aligned at: 0.75" + Indent at: 1" 4 The company may utilize existing audits, assessments and security standards required of the Formatted: Font: Bold company to achieve equivalent security results as required in FIPS 200 and Special Publication Formatted: Indent: Left: 0.75" 800-53. Formatted: List Paragraph, Numbered + Level: 1 + Numbering Style: A, B, C, … + Start at: 5 + Alignment: Left + Aligned at: 0.5" + E. General Provisions Indent at: 0.75"

Formatted: Font: Bold 1. FCIC will provide a policy detail statistics file by March following the reinsurance year. RMA Formatted: List Paragraph, Indent: Left: will subsequently “refresh” those files in March each calendar year that the Reinsurance Year’s 0.75" 2nd Draft February 23, 2010 RMA-Appendix III 4

automated processing was active. Historical policy data statistics files for reinsurance years prior to the 2011 reinsurance year will be provided by no later than March following the 2012 reinsurance year. Formatted: Indent: Left: 1", No bullets or 2. FCIC will provide the AIP any necessary “web services” or backend data and GIS files that are numbering required to sell and service regulatory, pilot and 508(h) policies or the policy’s implementation will be delayed until such time as this information can be provided to the AIP. Formatted: Indent: Left: 1", No bullets or 3. FCIC will grant the AIP access to RMA’s data mining “Dashboard” products by no later than numbering March following the 2011 reinsurance year. Formatted: Indent: Left: 1", No bullets or 4. FCIC determinations under the SRA or the eligible crop insurance contract (i.e. excessive yield numbering determinations, Good Farming Practices, max yields, etc.) will be made within 90 days of the AIP’s request, or the AIP’s request shall be considered approved. Formatted: Indent: Left: 1", No bullets or 5. FCIC will not develop any type of premium quoting application, web site or web service that is numbering the responsibility of the AIP under the SRA/LPRA. Any premium cost estimator application web site or web service developed by FCIC will be limited to the actuarial offerings and policy coverages, and at no time will be based on a producer’s farming operation, specific unit choices, actual acreage or written agreement terms. Formatted: Indent: Left: 1", No bullets or 6. As it is the responsibility of the AIP to develop sales and policy servicing systems under the numbering SRA/LPRA and delivery of the Federal Crop Insurance Program is provided solely through AIPs under the Federal Agriculture Improvement and Reform Act of 1996, the eDAS Graphical User Interface (GUI) website will be shut off effective with the 2012 reinsurance year. RMA will continue to provide and maintain the web services that support eDAS, and it shall be the AIP’s responsibility to submit AGR and LPRA data through the eDAS web services thereafter. Formatted: Font: Bold Formatted: Indent: Left: 1", No bullets or 7. The AIP will conduct data reconciliation, as required under the Agricultural Risk Protection Act numbering (ARPA), as specified in Appendix IV, and report any necessary result of that reconciliation as Formatted: List Paragraph, Numbered + Level: 1 + Numbering Style: 1, 2, 3, … + Start specified herein. at: 1 + Alignment: Left + Aligned at: 0.75" + Indent at: 1" Formatted: Font: Bold 2 Responsibilities Formatted: Indent: Left: 0.5", No bullets or numbering, Tab stops: Not at 0.5" The following table references the Entity, Function and Responsibilities related to submitting and Formatted: List Paragraph, Indent: Left: 1" processing data through PASS.

Entity Function Responsibilities RMA Waivers & Responsible for ensuring the AIP has met all their responsibilities, and approval Revisions or disapproval when requesting waiver of:

 fund designation lockdown dates/modifications to fund designations  A&O subsidy reductions for LRR  Deleted: A&O subsidy reductions for LFA  revision to MAX Yields RMA Reporting Responsible for:

2nd Draft February 23, 2010 RMA-Appendix III 5

 providing updates to FCIC reporting guidelines  performing duties and validations of AIP submitted data as outlined in the “Formats/Edits” portion of this Handbook  determining data reporting requirements, validation edits, files and standards  maintaining and administering databases and other storage media used by PASS  maintaining and timely releasing to AIPs the Insurance Control Elements (ICE) validation files reference herein  preparing and providing error reports to the AIP designee containing data not passing all edits and validations specified by FCIC  updating/maintaining reinsurance data in the policy and accounting databases  providing technical assistance in error resolution  responding within 7 business days to a properly completed PASS error report  generating reconciliation reports/data  generating accounting reports/data  generating revised monthly operations reports after current worksheets are Deleted: <#>processing premium due report data updated by the AIP upon receipt of the certified report/worksheet when received by the due date for monthly reporting¶ RMA Reimbursement Responsible for reimbursement of the following in accordance with Part 3 of this Appendix:

 losses  administrative subsidies  gain sharing  interest AIP Reporting Responsible for taking actions to ensure timely and accurate data submission to FCIC, including but not limited to submission of:

 accurate and detailed eligible crop insurance contract data and other supporting information (e.g., CIMS, COI, Agency/Company employee, etc.) to FCIC in the format prescribed in this Appendix  information certifying review of MAX yield data to support change requests  properly completed PASS error reports to DQS, after analysis or for guidance in correcting rejected data that is present on the PASS error listing  data corrections to timely resolve reconciliation differences Deleted: report  electronic loss data for escrow funding  certified hard copy or electronic monthly/annual operations reports (recap and worksheets), and all other supporting reports (e.g., premium due worksheets) by reinsurance year  producer premium payment information by the accounting cut-off date for the calendar month after the billing date Deleted: collection

3 System Overview______

A. PASS Overview

2nd Draft February 23, 2010 RMA-Appendix III 6

1. PASS and RAS are two integrated data processing systems. PASS receives and performs validations on transmitted data. Data validated by PASS is loaded to RMA databases. Together they provide RMA with a mechanism to provide reasonable assurance that data received is accurate, that errors are corrected timely, that information contained on Monthly Operations Reports certified by the AIP are accurate for the validated data, and appropriate accounting entries are made in RMA’s Financial Accounting Systems. An overview of these two systems follows.

a. Data supplied to FCIC for an AIP is processed through PASS. The data is checked for proper reinsurance year format. All transmitted data that is accepted will replace previously accepted data on a policy level.

b. Validations are performed on submitted transactions for data accuracy and compliance with policy, procedure and processing requirements. The PASS performs required edits on each transaction to the extent practical before rejecting a transaction. Upon completion of editing, a report is generated which summarizes the acceptance, rejection and suspension by record type and liability, premium and indemnity amounts from the transaction. Records which were found in error are system-generated output that is sent to an AIP after each edit completes.

c. Error processing is the validation that occurs from the record submission process and provides the AIPs a way to track and resolve errors that occur both within the file submission process and within the records submitted.

d. As part of the PASS/RAS operations, an AIP will be required to reconcile data contained within their systems with data submitted to and accepted by RMA. As a means of assisting the AIPs in reconciling their systems with PASS, RMA will return both AIP and RMA calculated values in rejected and accepted records for each batch submitted.

e. The DQS provides operation support for the PASS and eDAS systems. All questions regarding data distribution reporting, and validation should be addressed to the AIP’s DQS representative.

See Exhibit 97 for a chart displaying the flow of data from AIPs to RMA

B. eDAS Overview

1. eDAS is a real time system operating in a web environment designed to edit transmitted data from AIPs. AIPs will send data in Extensible Markup Language (XML) format to be processed by eDAS or, for the 2011 reinsurance year only, use RMA’s web application to input required information to eDAS. After performing a series of edits on the data, an SML transmission with all input data received from the AIP and output data defined by RMA will be sent back to the AIP in the same order they are processed. The transmission will also notify the AIP of its acceptance or rejection, and if rejected, errors will be included in the return transmission.

2nd Draft February 23, 2010 RMA-Appendix III 7

2. eDAS will perform a series of edits on the current data. The type of data and edits performed will be outlined later in Appendix III. Edits are done in a series of steps. If any step fails, no other edits beyond the current step will be done.

a. First, basic edits are done. Some of these edits include a required check, optional check, numeric check, alphabetic check and validity of codes check.

b. Next, conditional rules apply. These rules apply to Appendix III tags that will only be present based on the value of other Appendix III tags.

c. Advanced rules include ADM cross reference checks and inter-field comparisons. If needed for the current Appendix III section, the corporate calculation modules are run to determine premium or indemnity.

d. Calculation validation edits are performed to determine if the AIPs calculated values match RMA’s calculated values.

e. Post processing Rules are performed as the final step, and include checking the Underwriting Capacity Manager (UCM)

f. RAS will be used to generate accounting reports containing AIP data processed by eDAS. Data will be taken directly from the database to feed RAS.

4-10 (Reserved)

2nd Draft February 23, 2010 RMA-Appendix III 8

Part 2 Organizational and Formatting Standards

11 PASS Submission Requirements __

A. PASS Submission

1. Monthly submission of data is mandatory through annual settlement if any activity occurred during the month. All data submitted will be processed through PASS as soon as possible. Occasionally, the system will be unavailable during normal operation hours due to scheduled or emergency maintenance. Companies will be notified as soon as possible in these cases. Transmission files between 2 and 1,000,000 records will be automatically processed during operations hours Monday through Friday. Operation hours for all reinsurance years are Monday 6:00 a.m. to 11:00 p.m., Tuesday through Thursday, 6:00 a.m. to 2:00 a.m. and Friday 6:00 a.m. to 8:00 p.m. Any transmission received after cutoff or a file that is too large to be completed during the operation hours will be processed in the next operation period.

a. The Company is limited to submitting data through automated systems for 3 years following the first annual settlement for the reinsurance year. Settlement of claims still in litigation, arbitration, or any administrative proceeding more than 3 years after the first annual settlement for such reinsurance year must be reported to FCIC and will be processed manually following the resolution of such action Comment [d1]: Moved from the SRA Section IV (b) i. Unless otherwise permitted by FCIC in this Appendix, the Company may not submit estimated data for the purpose of establishing premium, liability, or indemnity. Comment [d2]: Moved from SRA Section IV(b)

b. “Transaction cutoff date” for weekly data reporting is 8:00 p.m. central time on Friday of each calendar week. A transaction week begins with Saturday and ends with Friday. Deleted: as shown in exhibit 160, Weekly Any date that falls on a Saturday will be due by the following week’s transaction cutoff Transaction Cutoff Dates date. Deleted: calendar Deleted: Sunday c. “Transaction cutoff date” for monthly data reporting is 8:00 p.m. central time on Friday Deleted: Saturday after the first Sunday of the month. Deleted: use the preceding Friday as Deleted: day d. RMA may deviate from submission reporting requirements when necessary to ensure accurate and timely data processing. Deviations from stated reporting requirements may occur only in cases of material monetary discrepancies created by the processing of inaccurate or untimely data.

2. Companies must contact RMA prior to submitting transmission files over 1,000,000 records. RMA will schedule these files to be processed based on the availability of the operating system. This is required for validation purposes and to allow time for correction and resubmission of rejected transactions to FCIC before the monthly transaction cutoff date for processing.

2nd Draft February 23, 2010 RMA-Appendix III 9

[Note: NCIS believes there are inconsistencies in the instructions between #3 and #4 below, in st addition to typographical errors. Please see our comments to the 1 draft for recommended Formatted: Superscript changes to these two paragraphs.]

3. In order to correctly process files delivered by the AIPs to the FTP server, the file structure must submit the 2 digit AIP Code, 4 digit reinsurance year, and 1 digit application code. For example:

AIP Code XX Reinsurance Year 2011 Application Code 3 Submit File Format XX20113.ZIP

The file formatting rule applies only to the file submitted to the FTP server. Each ZIP file must contain only one file within it. There are no format rules for the name of the file contained within the ZIP file. All data must be pipe-delimited, with no extra pipe at the end of the line. All fields requiring a sign (+/-) will be noted with a leading “S” in the “Format” column. This sign will be included in the Maximum Length field. Example: S9999.99

4. All files are immediately date/time stamped when they land on the FTP server. Once an AIP submits a file to the individual “Upload” folder the FTP service performs the following checks:

Check # 1 - FILE SUBMISSION CHECKS If corrupt and cannot be opened, it is moved to the common upload folder with a dot-BADZIP ZIP File Validity Check extension File is moved to the common upload folder with More Than One File inside ZIP a dot-BADZIP extension. If the name is not the same as the AIP indicated in the user id that submitted the file, the file is moved to the common upload folder and the name of the file is modified to indicate that the File Name Match with User ID file is invalid with a dot-BADAIP extension. Check #2 - SYSTEM LEVEL ERROR CHECKS FTP Server service will leave the file(s) in the staging folder. When the SQL server becomes SQL Server Folder Not Available available, the files are copied FTP Transfer Service will attempt to copy the file again. If it still does not match, an error is logged to the file system and an e-mail is sent to the support team. The FTP Transfer Service will File size on SQL Server does not match the suspend all further copying until the issue is FTP server resolved. RETURN ZIP FILES TO COMMON DOWNLOAD FOLDER [AIPCODE][REINSURANCEYEAR] [APPLICATIONCODE][BATCHNUMBER]. ZIP XX2011P0003.zip Appended output fields and a filename of [AIPCODE][REINSURANCE YEAR][APPLICATIONCODE][BATCH Original Text File Return Name NUMBER].TXT 2nd Draft February 23, 2010 RMA-Appendix III 10

Unknown Record Text File Return Name XX2011P3Unknown.txt Exception Record Text File Name XX2011P3Exception.txt Contains errors in which validation could not Unknown Record Contents (P98Z) occur due to the error. Reinsurance Year does not match the Unknown Reason Code 1 Reinsurance Year on the batch file name AIP Code does not match the AIP Code on the Unknown Reason Code 2 batch file name Record Type not in list of accepted Record Type Unknown Reason Code 3 Codes (by Reinsurance Year) Record has the wrong number of delimiters for Unknown Reason Code 4 the Record Type Unknown Reason Code 5 Record is missing pipe delimiters One or more record columns exceed allowable maximum width. The P98Z exception record contains a filed called “OverflowColumns” that contains the index of all fields in the input record that were too large to fit into their associated staging table. The index is 1-based, and indicates the position in the current row where the field was too large. If it has more than 1m rows or any single row is greater than 500 characters, it is considered a malformed file and the entire batch is dumped. The zip file will contain a single P98Z record which will have the name of the submitted file as it exists in the AIPs upload folder. If the number of records exceeds the maximum allowed the file is considered malformed and the Malformed Batch code contains a malformed file, “M”. If any single row exceeds the maximum allowed length the batch is considered malformed and the Malformed Batch Code contains a Malformed Unknown Reason Code 6 Row, “R”. Record type outside of valid submission Unknown Reason Code 7 startdate/enddate. Contains errors in which validators using requirements defined in the Appendix III resulted in the capture of errors within the record Exception Record (P99Z) and at the record level Exception Record Process Result Codes identifying the status of the processing for that record. When record level rules are validated, the field name and number will be left blank and the Rule ID will contain the number of the record level error that has occurred. A Accepted Rejected, but with an established LRR, or Deleted: LFA K Escrow Fund recorded as appropriate M Message R Rejected W Warning System Level Error Handling within the CCAVE process includes the following scenarios. An event is logged to the file system and an e-

2nd Draft February 23, 2010 RMA-Appendix III 11

mail is sent to the support team. The validation process is then aborted for that batch and Validators encounter an error and cannot processing of new batches is suspended for all generate the SQL statement AIPs. An event is logged to the file system and an e- mail is sent to support team. The validation SQL statement generated by the validators process is aborted for that batch and processing causes an error when run against the database of new batches is suspended for the AIP and server. Reinsurance Year associated with the error. Max length of an individual row is 5,000 where an individual row exceeds 5,000 ch it becomes a CRDS will capture individual unknown rows malformed batch CRDS will log file index information on malformed batches It will not capture the submitted data

5. Upon successfully passing all edits, accepted data will be included in the Monthly Operations Reports generated by RAS. Failure of data to pass all reporting and edit requirements in this Appendix may result in such data not being accepted for payment on the Monthly Operations and Annual Operations Reports. Data must be electronically transmitted successfully and completely received by the transaction cutoff date to be included in that week’s transactions. Monthly Operations Reports will be prepared based on data received and accepted by the transaction cutoff date for monthly reporting.

6. Data must be submitted on a reinsurance year basis. The 2011 Reinsurance Year data would include the following crop year data:

a. 2011 Avocados[Note: should this be 2012?] b. 2010 Raisins c. 2012 Citrus (Arizona, California, Florida and Texas) d. 2012 Florida Fruit Trees e. 2012 Nursery f. 2011 Texas Citrus Trees and all other crops

7. All data relating to each respective Reinsurance Year must be included in the same submission, with separate submissions required for each reinsurance year.

8. The amount of premium submitted by the AIP cannot exceed the maximum premium limitation approved by RSD. With each PASS edit, AIPs will receive the Year-to-Date accepted totals on the .sum report. This report notifies the AIP of the summary statistics, including premium accepted as of the report date. When the percentage has reached 100% of maximum premium limitation approved by RSD, RMA will determine whether subsequent processing will be suspended. Accounting reports will be generated based on data received prior to any suspension.

st 9. Eligible crop insurance contracts may be accepted any time up to the 1 annual settlement for the Deleted: the February cutoff date following st reinsurance year. Thereafter, policies will be rejected if they are originally submitted after the 1 Formatted: Superscript annual settlement. If a situation arises that causes the AIP to be unable to meet this cutoff, Deleted: February cutoff date justification may be submitted to the DQS representative for RMA review to determine if a Formatted: Superscript waiver is appropriate.

2nd Draft February 23, 2010 RMA-Appendix III 12

10. Fund Designation

a. AIPs may designate eligible crop insurance contracts with an accepted Type 9 record to the Assigned Risk Fund by the fund designation cutoff date. AIPs may remove previously Deleted: Residual assigned Assigned Risk Fund designations on eligible crop insurance contracts by the Deleted: Residual fund cutoff date. All eligible crop insurance contracts not designated to the Assigned Deleted: Residual Risk Fund will automatically be placed in the Commercial Fund. Fund designation cutoff dates will be determined for eligible crop insurance contracts as follows:

i. For an eligible crop insurance contract associated with an agricultural commodity with a fixed sales closing date, (including those with multi-year Written Agreements after the initial year), the Type 9 record must be accepted by PASS by the weekly transaction cutoff date for the week including the 30th calendar day after the sales closing date.

ii. For eligible crop insurance contracts with extended sales periods (i.e., sales are permitted beyond the sales closing date shown in the special provisions), the transaction cutoff dates for the designation of policies to the Assigned Risk funds Deleted: Residual are:

1. For new policies, the later of the transaction cutoff date for the week containing the 30th calendar day after the eligible producer signature date or the transaction cutoff date for the week containing the 30th calendar day after the sales closing date.

2. For carryover policies, the transaction cutoff date for the week containing the 30th calendar day after the sales closing date.

iii. For written agreements requiring annual FCIC approval or for the initial year of an eligible crop insurance contract associated with a written agreement only, (excluding Written Agreement types GP, HR, NL, SP, UA), the Type 9 record must be accepted by PASS by the weekly transaction cutoff date for the week including the 30th calendar day after the RMA written agreement approval date (Print Date.)

iv. For AGR-Lite the sales closing date of 3/15 will be used for new insureds. For Carryover AGR-Lite insureds the cancellation date of 1/31 will be used. For AGR, the sales closing date of 1/31 will be used for all insureds. The Fund must be accepted by eDAS by the weekly transaction cutoff date for the week including the 30th calendar day after the applicable date.

v. If the actuarial documents or ADM have more than one sales closing date for the eligible crop insurance contract, the earliest SCD will be used to determine the fund designation cutoff date, unless the type or practice is reported to indicate the specific SCD.

1. For crops in counties with both Fall and Spring Sales Closing Dates, if the fall crop is not planted and a zero acreage record is accepted for the fall 2nd Draft February 23, 2010 RMA-Appendix III 13

crop, the fund designation for the spring crop may be changed up to the fund designation transaction cutoff date for the spring crop.

vi. If an “Added-county” block is used on applications and/or contract change forms in accordance with the Document and Supplemental Standards and Crop Insurance Handbooks, they may timely indicate the primary (designated) county for fund designation by entering the appropriate field value in the multi-added-county flag field for the location state, policy number, crop year and crop code. The primary county for fund designation does not have to match the primary county used for the additional county provisions on the “insurance in force” record (Type 14.)

1. Subsequent counties established under the “Added-county” procedure and transmitted to PASS after the fund designation deadlines, must be placed in the same fund as the primary (designated) county. Subsequent counties are indicated by placing the appropriate value in the Added-county flag field.

2. Only category B crops (excluding Forage Production) qualify for added- county.

3. Subsequent counties can be added after Fund designation cutoff if an insured does not have an interest in any other crop in the added county.

4. Companies must also identify the primary (designated) county policy key (location state/county, AIP number, policy number, crop year, crop code and type code) in the added-county reference policy key fields.

vii. High Risk Ground, and specialty types of soybeans and barley may be excluded from a revenue plan of insurance and insured under a yield based plan of insurance. The fund designation for high risk ground may be different than the primary/revenue plan fund designation.

viii. When RMA approves alternate crops, the Type 9 record must be accepted by PASS by the weekly transaction cutoff date for the week including the 60th calendar date after the RMA approval date.

b. AIPs are to notify their DQS representative via e-mail immediately of any problems or issues that may impact previously accepted eligible crop insurance contract data or which prevents timely acceptance of data.

c. Livestock price insurance contracts accepted by the UCM must be designated to the Private Market Fund within two Federal business days of the acceptance date of the Deleted: workdays contract by FCIC.

11. Determination of LRR Transaction Cutoff Date

a. The ADM 3, Dates Record contains a modified Sales Closing Date to accommodate sales closing dates falling on a non-business day. It also contains an Extended Sales Closing Date if RMA extends a sales period. If there is not a modification or extension, all three 2nd Draft February 23, 2010 RMA-Appendix III 14

date fields will contain the same date. PASS uses the Extended Sales Closing Date to Deleted: <#>Determination of LFA¶ ¶ calculate LRR and fund cutoff dates (this would be the latest possible date.) <#>The A&O subsidy applicable to the eligible crop insurance contract will be reduced when acreage records are accepted i. The Type 10 and 14 records identify data elements required for timely reporting of in PASS for the first time after the an eligible crop insurance contract. The late change date field will reflect the date transaction cutoff date for the sixth (6th) full week after the week which includes the of the batch where one or more of these elements were changed. If the company latest acreage reporting date as specified in resubmits the 14 record back to the lockdown coverage level, price election the ADM file for the crop, county and plan code within the same Fall/Spring seed cycle percentage and market price indicator, PASS will reverse the reduction to the designation. The PASS will compare the lockdown reduction percentage. processing date of accepted acreage reporting date to the final acreage reporting date shown on the ADM for each crop b. The LRR transaction cutoff date will be determined for eligible crop insurance contracts within a policy except as noted below:¶ ¶ in accordance with the SRA, except for those eligible crop insurance contracts meeting the <#>If a policy has multiple crops in a following conditions: county, the latest acreage reporting date will be used to determine the weeks late for all crops established with a 14 record 1. RMA approved written agreements excluded from LRR cutoff in the county. This only applies to the crops with the same Fall/Spring seed determination under Section 3 cycle designation. Crops with the latest acreage reporting date for the crop, county and plan code of February 1 of the High Rate Area (HR) reinsurance year are considered Fall. Acreage not harvested or planted in prev. year (NB) Crops with all other acreage reporting Listing Reconsideration for Tobacco 2005 (TL) dates will be considered Spring. If the acreage is not accepted by the 6th week Small Grains Interplanted (SG) after the acreage reporting deadline, the Seed Potato acreage > 12% (SP) expense reimbursement for eligible crop insurance contracts will be reduced by Written Unit Agreements (UA) percentages shown on the LFA reduction Unrated Land (UC) chart in Section 21.C., Accounting Processing Considerations. Refer to Exhibit 11-8 for written agreement LFA ii. Additional County Application determination.¶ ¶ <#>For AGR and AGRLite, the expense If the eligible crop insurance contract was sold under the additional county reimbursement will be reduced on AGR contracts in cases that the Annual Farm provision, any subsequent counties will be accepted with the same LRR Report is accepted in PASS after the determination as the designated primary county contract. transaction cutoff date for the 6th full week after the week which includes the sales closing date as specified in the iii. Multiple Sales Closing Dates ADM file for the crop, county and plan code. The expense reimbursement for eligible AGR and AGRLite insurance If the eligible crop insurance contract has more than one sales closing date for the contracts will be reduced by the percentage shown on the LFA reduction eligible crop insurance contract, the earliest SCD will be used to determine the chart.¶ LRR transaction cutoff date, unless the type or practice is reported to indicate the ¶ <#>Crops with a single sales closing date specific SCD. with multiple planting periods that extend from fall to spring will be considered Spring Seed cycle codes and use the latest iv. Successor-in-Interest [Note: Is this still applicable for 2011?] acreage reporting date for late filed acreage determinations. The expense reduction will be reduced when the For successor-in-interest changes to a policy between sales closing date and date acreage records reported to PASS are insurance attaches to prevent LRR determination, additional data must be accepted accepted after the transaction cutoff date for 6th full week after the week which by PASS. After insurance attaches successor-in-interest is not applicable for includes the latest acreage reporting date.¶ reporting until the subsequent crop year. ¶ <#>For Nursery (0073) and Florida Fruit Trees (0207 through 0214) the expense reimbursement will be reduced when the acreage/inventory records reported to 12) CIMS Discovery Reports PASS are accepted after the transaction cutoff date for the 6th full week after the week that includes either:¶ ... [1] 2nd Draft February 23, 2010 RMA-Appendix III 15

a) Please describe the complete process by which CIMS discovery reports are generated and distributed. b) Any reconciliation of eligible crop insurance contracts on a CIMS discovery report will be conducted as specified in Appendix IV. c) CIMS discovery reports may be released at a lower tolerance level percentage then is required for any reconciliation specified in Appendix IV. In such case, it will be at the Company’s sole discretion to report any codes for purposes of clearing the eligible crop insurance contract from the discovery report.

B. eDAS Submission

1. Data will be processed through eDAS in real time. eDAS will be operational 24 hours a day and 7 days a week for certain Appendix III sections with exceptions for maintenance. Appendix III sections available in the operational hours listed above, are Agent, Entity, SBI, Policy, Fund, Crop Policy, Adjuster (if applicable), and Reviewer (if applicable). The insurance plan will determine the availability of eDAS for the Premium and Indemnity sections. For example, the Livestock Risk Protection plan will fail any premium or indemnity records sent during certain hours of the day due to ADM data unavailability. If maintenance is required, eDAS will be temporarily shut down, fixes will be migrated into eDAS, and eDAS will be turned on again. eDAS will be unavailable for processing data daily from 12:00 p.m. to 1:00 a.m. for daily maintenance. If at this time eDAS is in the middle of processing data, the data not processed will be rejected.

2. eDAS requires the transmission of Appendix III sections in a certain order. This order by section is as follows:

a. Agent, b. Entity, c. SBI, d. Policy, e. Fund (AGR/AGR-L), f. Crop Policy, g. Reviewer (if applicable) h. Premium, i. Fund (Livestock), and j. Indemnity

i. If data is sent out of order, eDAS will send an error back to the AIP in its XML output for the current transaction. For example, Crop Policy data with an Agent ID code must have an accepted Agent section for that Agent ID code.

3. eDAS does not require the bundling of an entire set of sections for a policy. For example, once the Agent data has been accepted by eDAS, it never will have to be sent to eDAS again unless the AIP wishes to update it. Agent data is not required each time Policy or Premium data is sent. This also applies to the SBI data. For example, if five SBI records are required for the Entity, one

2nd Draft February 23, 2010 RMA-Appendix III 16

may be sent today while two more may be sent next week and the remaining two may be sent in two months from now.

4. AIPs will indicate the type of transaction currently being sent to eDAS using the Appendix III fields process flag and change flag.

a. Process Flag indicates whether the transaction is an original, a modification, a deletion, a validation, a quote, a retrieval, cancel or re-instate as defined below.

Transaction Type Function Original First Time Entry. All edits will apply Update to an existing record. Key fields and the updated values Modification are required. All other fields will be ignored. Marks the currently accepted record as removed. Key fields will Deletion be required for the delete. All other fields will be ignored. Will not consider the current transaction as real, but only as a test. All Appendix III edits will apply and errors will be returned to the Validation AIP. Only performed on sections associated with corporate calculation modules. Only values necessary to perform the quote will be required as input. A quote will not be treated as a real transaction but will return errors on required fields and corporate calculation Quote results to the AIP. Retrieval Indicates an AIP is requesting the information. Indicates an AIP is requesting the information to be canceled. Cancel Not applicable for AGR/AGR-L. Reinstate Indicates an AIP is requesting the information be reinstated (reverse the use of cancel (flag 8)). Not applicable for AGR/AGR-L.

b. Change flag of 1, 2 or 3 required on an update transaction only and indicates the level of change authority associated with the record. Only fields with a level of change less than or equal to the change flag may be modified. For a Change Flag of 3, the AIP must submit a request to RSD for approval.

i. Only the latest eDAS transactions will be stored in the eDAS database. Input and output data will be stored when an original, update, delete, or cancel takes place. Each of these transactions will also be kept on the web server for a period of time for companies to download. Once an original update, delete, or cancel passes all edits and therefore was accepted by eDAS, it will be copied to the policy database. This will be done frequently during the day.

ii. Quote or validation transactions will not be stored in the eDAS database or written to the Web server.

5. eDAS Retrieval Process

2nd Draft February 23, 2010 RMA-Appendix III 17

a. There are two ways of retrieving data that has been posted to eDAS: i. Process Flag 7 – preferred method for reconciling data between eDAS and other systems, since it returns only what has been accepted directly from the eDAS database, and is therefore, much faster than Transaction Retrieval. 1. Submit a transaction to eDAS with no more than one of each of the records that are desired. On each record, set the process flag to 7. This instructs eDAS to look for the record in the database, and return records that match the criteria sent in. As much or as little of the record may be sent in, depending on how specific the request is. The only required fields are: a. insurance_provider, b. reinsurance_year, c. insurance_plan_cd (where applicable).

ii. Transaction Retrieval

1. Request a range of actual transactions submitted to eDAS. This method reads the transactions off of the disk, and is slower than using the Process Flag 7. Following is a description of the retrieval processes, as well as parameters that may be used to determine what should be returned.

AGR/AGR Lite and Livestock (2005 and subsequent)

HTML POST/GET https://online-livestock.rma.usda.gov/apps/edas_service/retrieve.aspx

Filtering Parameters start_dt (format mm/dd/yyyy) end_dt (format mm/dd/yyyy) start_tm (format hh:mm:ss 24 hour clock) end_tm (format hh:mm:ss 24 hour clock) section_name (comma delimited list of sections desired) start_trans_num (Transaction Sequence Number of first section to be returned) end_trans_num (Transaction Sequence Number of last section to be returned) accepted_rejected (Comma delimited list of character strings.) Values may be A for accepted only, R for rejected only, and B for both accepted and rejected. section_required (Comma delimited list of character strings.) Values may be Y, section required, or N meaning section not required process_type (string that can be either “actual”, “validate” or “all”) Designates what type of process flags to return. Include_warnings (string that can be either yes (Y) or no (N)) Use Y to return XML with warnings, N to exclude XML with warnings.

2nd Draft February 23, 2010 RMA-Appendix III 18

Search Parameters (returns transactions submitted in the last 90 days matching the following criteria Method by which transaction was submitted to eDAS. Valid values are webservice, transaction_method webapp or blank. reinsurance_year Reinsurance year of the records desired company Company listed on the policies related to the records desired insurance_plan_cd Insurance plan listed on the crop policies related to the records desired. policy_number Policy number of policies related to the records desired. id_number ID number of entity or SBI listed on policies related to the records desired location_state State listed on policies related to the records desired location_county County listed on policies related to the records desired. agent_ssn Agent SSN listed on crop policies and premiums related to the records desired. Example: https://online_livestock.rma.usda.gov/apps/edas_service/retrieve.aspx?start_dt=10/01/2010&end_dt=10/05/2010§ion_ name=agent,policy,crop_policy&transaction_method=webapp&reinsurance_year=2011&accepted_rejected- A,A,A§ion_required=Y,Y,Y&process_type=actual and include_warnings = Y

Will return accepted Agents and Policies with or without warnings from 10/01/2010 through 10/05/2010, where the records were submitted using the web application and the reinsurance year was 2011. Additionally, only policies with at least one accepted crop policy record will be returned. This search will not return any validate only records (process_flag of 4&5).

SOAP https://online_livestock.rma.usda.gov/apps/edas_service/main.asmx

Retrieve transactions from any date, using the following method. Transaction getTransaction(DateTime startDateTime, DateTime endDateTim, int startTransNum, int endTransNum, int startRecNum, int endRecNum, string[] sectionName, string processType) startDateTime A DateTime object representing the start date and time that you want to retrieve. endDateTime A DateTime object representing the end date and time that you want to retrieve. An Integer that represents the first trans_sequence_num you want to retrieve. 0 for all. startTransNum An Integer that represents the last trans_sequence_num you want to retrieve. 0 for all. endTransNum startRecNum An Integer that represents the first record umber you want to retrieve. 0 for all. endRecNum An Integer that represents the last record number you want to retrieve. 0 for all. sectionName An Array of strings representing the sections you want to retrieve. A String representing what process flags to return. “All” to return validates and actual processType records. To search transactions within the last 90 days, use the following method. Transaction getTransaction(DateTime startDateTime, DateTime endDateTime, int startTransNum, int endTransNum, int startRecNum, int endRecNum, string[] sectionName, string[] acceptedRejected, string[] sectionRequired, string transactionMethod, string processType, int reinsuranceYear, int insurancePlanCd, int company, int locationState, int locationCounty, int idNumber, int policyNumber, int agentSSN) startDateTime A DateTime object representing the start date and time that you want to retrieve

2nd Draft February 23, 2010 RMA-Appendix III 19

endDateTime A DateTime object representing the end date and time that you want to retrieve An Integer that represents the first trans_sequence_num you want to retrieve. 0 for all startTransNum An Integer that represents the last trans_sequence_num you want to retrieve. 0 for all. endTransNum startRecNum An Integer that represents the first record number you want to retrieve. 0 for all endRecNum An Integer that represents the last record number you want to retrieve. 0 for all sectionName An Array of strings representing the sections you want to retrieve An Array of characters representing whether sections in section name must be A – acceptedRejected accepted, or R – rejected. “B” for both. sectionRequired An Array of characters. Y meaning required, N meaning not required. Default is N. A string indicating the method by which the transactions desired were submitted to eDAS. transactionMethod Valid values are webservice, webapp or blank. A string indicating what process flags to return. “Validate for validate only records, processType “actual” for actual records, or “all” for all records. Default is actual. reinsuranceYear An integer indicating the reinsurance year of the records desired An integer indicating the Insurance Plan listed on the crop policies related to the records insurancePlanCd desired. An integer indicating the company listed on the policies related to the records desired. company locationState An integer indicating the state listed on policies related to the records desired locationCounty An integer indicating the county listed on policies related to the records desired An integer indicating the ID number of entity or SBI listed on policies related to the idNumber records desired policyNumber An integer indicating the Policy number of policies related to the records desired An Integer indicating the Agent SSN listed on crop policies and premiums related to the agentSSN records desired A Boolean indicating whether to include or exclude XML with warnings. Use “true” to includeWarnings include warning and “false” to exclude warnings. Note: the second web method is an overload of getTransaction with more parameters. In the SOAP packet, it will be shown as searchTransaction instead of getTransaction. This will not affect Microsoft.Net developers who can continue to use getTransaction in their code.

iii. The three web methods to allow for eDAS offline processing are described below: Allows an AIP to send XML offline. The trans_sequence_num is returned to the sendOfflineTransaction user Allows an AIP to poll eDAS using the trans_sequence_num to determine if eDAS has finished processing. A return value of “True” is returned if eDAS is finished. getOfflineTransactionStatus A return value of “False” is returned if eDAS is still processing the transaction. An overload of getTransaction allows an AIP to retrieve XML using the getofflineTransaction trans_sequence_num as its only input parameter.

2nd Draft February 23, 2010 RMA-Appendix III 20

6. Report/submit the minimum number of insurance contracts and indemnified contracts required Deleted: a to be reviewed in Appendix IV. Flag contracts that are reviewed. Deleted: of 5% Deleted: 5% of C. CIMS SUBMISSION

1. Companies may request insured producer data from CIMS. Before CIMS will return any data to an AIP for a requested insurance policy, the producer’s policy must have been previously accepted by RMA and loaded into the CIMS database.

2. AIPs may request CIMS information by submission of a CIMS Request, Type 05 Record. The request record will contain fields for the RMA policy key and the FSA administrative state and county (if needed) and will be used to retrieve FSA producer and/or crop acreage information. The request will be performed by matching the RMA location state and county to the FSA location state and county. There may be cases where the request must be made based on the FSA administrative state and county. In these situations, the AIP will submit the FSA administrative state and county on the request record and the process will use these values and not the RMA location state and county. If the AIP request indicates that a statewide application exists, the returned acreage information will be based on the RMA location state matching to the FSA location state or matching to the FSA administrative state if the FSA administrative state is submitted with the request.

3. The AIP will be able to request three sets of information for an insurance policy;

a. producer information for the primary insureds, including spousal information b. producer information for primary insureds and the reported SBIs, and c. acreage information for the primary insureds

12 Telecommunications______

A. PASS Telecommunication Processing

1. Electronic transmission is mandatory for submission of data and dissemination of reports. Electronic transmission provides faster processing turnaround, and more automated processing of data submissions and report handling. This method of processing allows RMA to direct its resources to error resolution and AIP processing support functions.

2. RMA’s Insurance Provider Server (IP Server) is a system designed to provide data transmission services for all AIPs and associated organizations which report to RMA. In addition to this, the IP Server also supports connections to RMA’s system. Each AIP is responsible for obtaining telecommunications services from any common carrier of their choosing. The IP Server supports VPN and Dial-up connections to the IP Server.

2nd Draft February 23, 2010 RMA-Appendix III 21

3. All AIPs will need to complete security form FCIC-586 before a connection ID can be provided. Once that ID is provided, connection details are as follows:

Dial-Up – Connectivity can be ITU V.90 industry standard modem speeds up to 56 KBPS achieved using Modems should be configured with no parity, 8 data bits, 1 stop bit and full duplex. VPN Connections – 2 Available Options Connection must be encrypted with the following parameters. 3DES Encryption Algorithm, SHA1, Authentication Algorithm, and Pre-Shared Secret as Authentication Mode Checkpoint Secure Client Client workstations use Checkpoint client which is a free download from the Internet. RMA will provide connectivity documentation for the initial setup and connection. Technical support on the client’s side will be the responsibility of the AIP. A permanent connection to the public Internet is required Checkpoint Site to Site VPN An industry standard firewall capable of a Site to Site Connection VPN Tunnel over the public Internet. Technical support on the client’s side will be the responsibility of the AIP.

4. The IP Server can be reached at 1-800-847-3834. This is a toll free call available from anywhere in the continental United States. It currently operates forty-six (46) on ISDN-PRI (Digital) service configured as one access group. Any AIP who chooses may establish a dedicated access to the IP Server via the above mentioned Site to Site VPN connection. Those AIPs who wish to have dedicated access would be required to provide the compatible equipment as listed above. AIPs considering a dedicated connection to the IP Server should contact the System Administration Section before making any purchases.

5. Except for the maintenance periods, AIP may initiate the transmission at the AIP’s discretion during operational hours. This could include multiple daily submissions.

6. RMA will retain the option to stop automatic edit processing, at its discretion. AIPs will still be allowed to continue transmitting data, although it is not immediately processed through the PASS. A temporary stop in automatic edit processing should only occur in case of a PASS processing problem, maintenance, or when the timing of edit revisions must coincide with a particular point in time of the submission cycle. In the event that automatic edit processing is stopped for more than one hour, the AIPs will be notified when processing has resumed. All submissions sent during this period will be processed separately in the order they are received.

B. PASS Report Handling

All reports, error listings and operations reports will be made available to the AIP for downloading via the Web Server.

C. eDAS Telecommunications/Security 1. All eDAS transactions will take place on a web server. A user id and password are required to use eDAS. These items will be given to each AIP by RMA upon request. XML data transfer 2nd Draft February 23, 2010 RMA-Appendix III 22

will take place along a 128-bit SSL link. Performing a HTTP XML post to eDAS may be done with many languages including Perl, Java, or Windows Server Com objects XMLDOM and XMLHTTP.

2. AIP must submit a FCI-586 to RMA Security for approval. Upon approval RMA Web Team will establish a Virtual Host on the Web Server and assign a VPN account. RMA Security will assign a Web App account.

3. For the 2011 reinsurance year only, there are two versions of the web app, Admin and Sales. In Deleted: T both cases, the web app is secured by 128-bit SSL. The Sales web app is not restricted to IP address since an agent could log in from somewhere other than the AIP office. The Admin web app is secured by the AIP ID and password provided by RMA (changed every 6 months). The AIP controls the ID and password of their agents to be used for the Sales web app. Agents can log into the Sales web app using the ID and password that is submitted via the agent section. If an AIP does not provide an ID and password for an agent, that agent will not have access to the Sales web app. For problems related to ID or password contact RMA Web Team at 816-926- 7301 or via email [email protected].

URL’S POST (SOAP) Test https://online-test.rma.usda.gov/apps/edas_service/main.asmx Production https://online-livestock.rma.usda.gov/apps/edas_service/main.asmx POST (W/O SOAP) Test https://online-test.rma.usda.gov/apps/edas_service/index.aspx Production https://online-livestock.rma.usda.gov/apps/edas_service/index.aspx

13 Processing Considerations______

A. PASS Processing considerations

1. RMA will maintain Policy Databases which contain the current net cumulative effect of all transactions for an eligible crop insurance contract and required supporting data. An eligible crop insurance contract is identified in the policy database, based on the following fields, AIP, Location State, Policy number and Crop Year. All transmitted records accepted for a policy fully replaces all previously accepted data for the eligible crop insurance contract.

2. RMA Internal use only, and Filler record type fields will be initialized by RMA. AIP Deleted: and Reserved transmitted data will be replaced with appropriate default value and may be overlaid with RMA Internal values.

3. Acceptable record types and specific handling considerations for PASS are as follows:

Type 5 Record CIMS Type 5 records are used to request insured producer data from Request CIMS. Type 5 records are not processed by PASS. For 2011, the Deleted: 2010 Type 5 record will be used to retrieve approved FSA producer and/or crop acreage information from the CIMS. The Type 5 records will be transferred from the secured IP Server to the CIMS for processing. The request information, along with the original 2nd Draft February 23, 2010 RMA-Appendix III 23

request record and status codes outlining success/failure in the process, will be placed on the IP server returned to an AIP. The AIP may then extract the CIMS information from the secured IP server. Type 9 Record Fund Timely acceptance of the Type 9 record is required to establish the Designation eligible crop insurance contract into the Assigned Risk Fund. Any Deleted: Residual eligible crop insurance contract not designated by the AIP to the Assigned Risk Fund will be automatically designated to the Deleted: Residual Commercial Fund. If an eligible crop insurance contract was established into the Assigned Risk Fund, the policy can be Deleted: Residual automatically established in the Commercial fund by deleting the Deleted: Residual Assigned Risk Fund designation before the Fund Designation transaction cutoff date for the eligible crop insurance contract. If a Type 9 Residual record is not accepted for an eligible crop insurance contract, it will be designated as commercial. The type code and practice code may be required for crops with more than one sales closing date to determine fund designation based on the sales closing date. Type 9 records are submitted for the eligible crop insurance contract on location state and location county basis. Once a record has been accepted it does not need to be resubmitted. RMA may accept fund designations records after the ADM Records have been released for the crop. Refer to Fund Designation Guidelines in Exhibit 9-1. Type 10 Record, 10A, Type 10 records are used to establish a policy and provide 10B Policy Records information regarding the policyholder and entities with a SBI, Spouse, Landlord and Transfer of right to indemnity. A Type 10 record requires at least one Type 14 record to be submitted with it. The Type 10 record identifies the data elements required for the timely reporting of an eligible crop insurance contract.

The PASS requires a Type 10 and 10A record. This is the “primary” insured, and establishes the contract within the system. If a Type 10 is not submitted, then all records for the contract will be rejected. PASS will allow a Type 10 record for each crop year covered under the policy number. All Type 10B records are considered a Spouse, SBI, Landlord or Transfer of right to indemnity entities with a SBI in the farming operations of the primary insured. 10B Other Person SBI records are required for the determination of the timely reporting of an eligible crop insurance contract. If any Type 10 record is rejected, then all records for the contract will be rejected. SBI record requirement is based on the entity type on the primary Type 10 record (See Exhibit 10-1).

A Type 49 Delete record will remove the policy and all records for the policy from RMA’s Databases and Duplicate files. Type 11 Record Type 11 records are used to establish premium and liability for each Acreage 2nd Draft February 23, 2010 RMA-Appendix III 24

acreage line. The record also identifies the land location. Legal Deleted: and allows reporting of common USDA descriptions in a section that has a high risk area designation will information receive a warning for partial sections and be rejected for sections completely within a high risk area designation.

A Type 11 record will not be accepted until corresponding Type 10, Type 14, Type 15 (if required - See Exhibit 15-4), and Type 27(if required - See Exhibit 27-1) records have been accepted by the PASS. A Type 11 zero acreage record must be submitted for zero acres, uninsured acres, no history acres (no APH records) and units not planted, on the eligible crop insurance contract. To modify data previously accepted, all current and valid records for the policy must be resubmitted. A Type 11 record will not be accepted until after the monthly cutoff preceding the date insurance attaches for the insured commodity. Type 12 Record Type 12 records are used to record/report payments by producers Payment for each eligible crop insurance contract. Only one Type 12 record per payment type code will be accepted for the contract. Type 12 transactions may be removed by resubmitting all applicable records for the crop insurance contract or via the Type 49 delete record with the exception of payment type ‘02’ or ‘03’.

When reporting CAT fee payments (either money or loss credit) using the Type 12 record, use the payment type “02”. A CAT fee receivable must exist before a CAT fee payment is accepted, and the paid amount for CAT fees cannot exceed the total receivable amount reported on the Type 65 record. The paid amount for CAT fees is cumulative. The paid date also must be greater than the debt delinquency date reported on the Type 65 record. Error conditions will occur for any of the following: duplicate Type 12 records, a paid date less than or equal to the debt delinquency date, no match to a receivable, and a paid amount with a $0 value.

When reporting CAT fee payment reversals using the Type 12 record, use the payment type “03”. The paid amount for reversals must equal the paid amount reported using payment type “02”. The paid date must be the same as the paid date reported on the payment type “02”.

The “03” payment type code is the only way to reverse a CAT fee payment. Error conditions will occur for any of the following: duplicate Type 12 records, and the paid amount and/or paid date do not match the previous “02” payment. The Type 49 delete record cannot be used to remove a CAT fee payment. Only the “03” payment type can be used to remove a CAT fee payment.

When reporting state subsidy use payment type code “04”, when applicable. 2nd Draft February 23, 2010 RMA-Appendix III 25

When reporting Financial Assistance Program use payment type code “06”, when applicable. Type 13 Record Type 13 records are used to establish premium and insurance values Inventory Value for Nursery (0073) and Aquaculture (0116). A Type 13 record will Record not be accepted until corresponding Type 10 and Type 14 records have been accepted. In addition, a Type 13 record for Aquaculture (Clams) will not be accepted until corresponding Type 17 has been accepted. A Type 13 record will not be accepted until after the monthly cutoff preceding the date insurance attaches for the insured commodity. Type 14 Record The Type 14 record establishes the crop, county, plan code and Insurance In Force reports the eligible crop insurance contract data determined at Sales Record Closing. The Type 14 record identifies the data elements required for timely reporting of eligible crop insurance contracts. The type code and practice code may be required for crops with more than one sales closing date to determine eligibility based on the sales closing date. Refer to Exhibit 14-1. Type 15 Record Yield The Type 15 records are used to record/report APH yield information for designated crops.

A warning message will be issued to companies when the yield year is less than 1970.

If a Type 15 record(s) is rejected, the corresponding Type 11 record will be rejected. Type 20, 20A Type The Type 21 and 22 Records establish the loss amounts for a given 21 and Type 22 eligible crop insurance contract and the Type 20 Record identifies Records the application or disbursement of loss payments. Loss Total Loss Line Record AIPs must transmit denied claim records to RMA with all Inventory Loss applicable fields recorded for any claim for indemnity inspected by Record (Nursery & Aquaculture) a loss adjuster and denied by the AIP thus resulting in no indemnity payment.

PASS will not automatically accept loss records if the price, coverage level, or market price indicators are accepted or modified after the notice of loss, producer signature date or loss adjuster signature date on the loss records.

Type 20 records are linked by Claim Number to corresponding Type 21/22 records. Therefore, all Type 20 and 21/22 records for an eligibl crop insurance contract from the transaction file will replace all Type 20 and 21/22 records for the eligible crop insurance contract on the Policy database.

If a Type 20, 21 or 22 record is rejected, all Type 20, 21 and 22 record for the Claim Number will be rejected. If a Type 11 or 13 record is

2nd Draft February 23, 2010 RMA-Appendix III 26

rejected, the corresponding Type 21/22 records for the crop are rejected, also all other Type 21/22 records for the Claim Number(s) of the rejected crop, along with all applicable Type 20 records for the Claim Numbers of the rejected Type 21/22s.

Optional: An AIP can submit Type 20 losses with loss total code of ‘D’, Unfunded Escrow, to ensure records clear PASS edits before sending an ‘E’, Escrow Funded. All loss total codes from the Type 20 will need to be sent every time because the sum of the loss totals should equal the indemnity amount on the Type 21/22 records.

Type 20, 21 and 22 Processing: The Type 20 record is submitted in support of the Payable element in the Type 21 or 22 record. There are multiple "buckets" which identify the breakdown of the indemnity amount:  premium on the policy for current year with the loss (M),  premium on another policy for current year(P),  administrative fees (F),  other (O),  recovery of a prior or subsequent reinsurance year premium or loss (R) The total of any loss application code must be greater than zero.

One Type 21/22 record is submitted for each loss line. More than one Type 20 record may be submitted, if needed, to support the 21/22 record(s).

If any of the "Total" fields on the Type 20 Record contain a "P", the corresponding "P/CR Memo State" and "P/CR Memo Policy Number fields must contain the Location State and Policy Number for current year to which the "P" amount will be applied. The RAS will show th generated "P" amounts in the loss credit column of the summary repor on the designated crop insurance contract.

1 If part of the loss is to be applied to an eligible crop insurance contract under a different AIP number than the eligible crop insurance contract with the loss, the "P/CR Memo Company" field must also be entered. If "P/CR Memo Company" is not entered (value of 000),PASS assumes the same AIP number as the eligible crop insurance contract with the loss and will generate the loss credit accordingly.

2 Rejected P/CR Memo Posting

If the P/CR Memo Policy does not exist in the database or the P/CR Memo Policy has zero premium, then the P/CR Memo posting is rejected. Generated P/CR Memo amounts will not be allowed to create an overpayment on a eligible crop 2nd Draft February 23, 2010 RMA-Appendix III 27

insurance contract. Such rejected postings are printed on a RAS error report titled "P/CR memo Reject Report." An example of this report is found in Exhibit 1. This report will be furnished to AIP with their Monthly Operations report. Type 27, 27A The Type 27 records are used to record/report corresponding land ids Records and associated information for the acreage reported on the Type 11 Land ID record. Report the Farm Service Agency Farm Serial Number, Tract Number and Field identifier, or equivalent CLU ID, by the monthly Deleted: for twenty percent of total acreage st transaction cut-off date for the 1 annual settlemnt for the reinsurance Deleted: February year as follows: Deleted: following Formatted: Superscript 2011 Reinsurance Year – 10% of total acreage for FSA program Deleted: . crops 2012 Reinsurance Year – 20% of total acreage for FSA program crops 2013 Reinsurance Year – 20% of total acreage for FSA program crops 2014 Reinsurance Year – 20% of total acreage for FSA program crops 2015 Reinsurance Year – 20% of total acreage for FSA program crops

For any eligible crop insurance contract that insures an FSA program crop and the insurance policy does not compel the insured to report acres by CLU, the company will not have to report acres by CLU for that eligible crop insurance contract when the insured does not voluntarily provide this information. However, the acres from such an eligible crop insurance contract will count toward the above minimum reporting percentages.

The Land Other Person Sharing P27A contains information about the Land Other Person Sharing relationships. Information contained on th record includes the Key fields necessary to track and identify the land being shared with the producer as well as identifying the Person Sharing in the production. The P27A is optional when reporting acres Deleted: and the share by CLU on the corresponding P27 record. Type 48 Records This record deletes the following record types: (Note: a final decision Delete Records on the effects of this record within PASS is pending RMA proposal under ITM) Type 49 Records The Type 49 Records are used to remove all records for the eligible Delete Records crop insurance contract from the data base(s) and the Dup process. Only one Type 49 Record will be processed per eligible crop insuranc contract from the transaction file. Subsequent Type 49 Records for th same eligible crop insurance contract will be rejected.

Type 49 records are processed independently after all other record

2nd Draft February 23, 2010 RMA-Appendix III 28

types have been processed for the eligible crop insurance contract. Type 51 Records Type 51 record is a record to report a COI respondent’s potenti Deleted: for Conflict of Interest conflict with a policy. Policy Reporting Record Type 51 records are processed by the AIP for each policy an acceptance of this record is dependent upon acceptance of corresponding 54 or 55 or 56 records. Each record must provide response identifying either a 54 Company Employee, 55 Agent or 5 Loss Adjustor.

All Conflict of Interest questions are required to have an entry. Th information must be for the crop year of the crops reported under th policy.

All Type 51 records reported in a batch will replace all previous reported Type 51 records. The Type 49 delete record has no impact o this Type 51 record. Type 54 Records Type 54 is a record for Agency/Company employee data. Agency/Company Employee Data Type 54 records require a tax identification number for all records. This record also includes Conflict of Interest (COI) question responses.

Type 54 records must be reported for any Company Employee who was required to complete a COI questionnaire under MGR-08-001 when their response to COI question #1 or #2 was “Yes”.

A 54 record must be accepted for the AIP and Company Employee ID before a corresponding 51 record will be accepted. All 54 records completely replace any previously submitted 54 records. Type 54 records will not appear in the Policyholder Tracking System. Type 55, 55A, 55B The Type 55 Records are used to record/report agent information. Record Agent Data Record 55 includes fields related to Conflict of Interest Questionnaire (COI) on the Type 51 record. The Type 55 record must be accepted for the AIP and Agent ID before 51 records will be accepted.

Type 55 records may be processed independently or with all other PASS records. This data will be collected by AIP and will be stored in order to identify agents, provide agent counts for AIP, and facilitate th creation of the Agent Location Directory. The agent records on the database are maintained by the AIPs. The acceptance of Type 11, 13 and 14 acreage records is dependent on acceptance of a valid agent SSN on a Type 55 record.

Multiple records can be submitted for each county serviced by the

2nd Draft February 23, 2010 RMA-Appendix III 29

agent to be used to facilitate access to the active agents and alternative language agents available in the Agent Location Directory. RMA provides agent information to sell crop insurance or livestock insurance as a service to our customers.

The Agent Location Directory will not display information for Inactive or Unlisted agents.

Each submission must include the AIP’s cumulative agent file for the reinsurance year in its entirety. AIPs are to only report licensed and/o certified agents who are actively participating in the delivery of FCIC approved products. The accepted agent records from each submission will replace all previously submitted agent records. Records will be rejected if the individual agent is currently disbarred or suspended.

55A Insurance Agent Agency identifies the Agency for an Agent.

55B Insurance Agent Servicing State identifies servicing area for agen locator. Type 56 Record The Type 56 Record is used to record/report loss adjuster information Loss Adjuster Data Record 56 includes fields related to Conflict of Interest Questionnaire (COI) on the Type 51 record. The Type 56 record must be accepted fo the AIP and Adjuster ID before the Type 51 records will be accepted.

Type 56 records may be processed independently or with all other PASS records. This data will be collected by AIP and will be stored in order to identify loss adjusters, provide loss adjuster counts and facilitate compliance analysis. Each submission must include the AIP’ cumulative adjuster file for the reinsurance year in its entirety. The accepted adjuster records from each submission will replace all previously submitted adjuster records. The acceptance of Type 21 and 22 loss records is dependent on acceptance of a valid loss adjuster SSN on a Type 56 record. Records will be rejected if the individual adjuste is currently disbarred or suspended. Type 57 Record Record 57 includes an additional response related to #19 – Conflict of Quality Control Interest Review. An “R” can be reported for “conflict no longer exists Reporting in place of “Y” or “N”.

The 57 records are to be submitted annually by April 30 following the crop year for all reviews required to be performed by Appendix IV. Type 58 Record Type 58 records are be used to provide damage estimates to USDA, Notice of Loss and keep RMA apprised of potential losses and occurrences by Reporting cause, date, location and type (prevented planting, replant, production loss, other) on a national level. This will be unverified information. Notice of loss records must be submitted within five business days of the date the AIP received the notice of loss for the

2nd Draft February 23, 2010 RMA-Appendix III 30

policy. Multiple Type 58 records must submitted for a crop/county combination using different record numbers. Timely processed Type 10 and Type 14 records are required before a Type 58 record will be accepted. Type 58 records can be deleted using the Type 49 record. Type 60 Ineligible Type 60 records are used to submit information regarding a Producer Input producer’s ineligibility status for participation in the crop insurance Record program. These records must be submitted in a separate file from all other record types and placed in the IT Input directory that has been established for each transmitting AIP on the IP server. Once per day a process collects all files transmitted, validates the data submitted and outputs 3 types of files to the IT Output directory on the IP server : 1) .acp - accepted transactions, 2) .rej - rejected transactions and 3) .err - error codes. The accepted transactions are loaded to the Ineligible Tracking System database and notification letters are generated and distributed to the ineligible producers upon their initial entry into the system for a period of ineligibility. Type 60E Ineligible Type 60E records are generated during the Ineligible Tracking edit Producer Error process. They will contain all errors for each Type 60 record that is Record rejected during the edit process. The file containing these records is placed in the submitting companies’ IT Output directory on the IP server (.err). Type 61 Ineligible Type 61 records are generated from the Ineligible Tracking System Producer Output database and output to the IT Output directory on the IP server for Record all companies. This file is an accumulation created daily after each ITS load of ALL producers that have been reported as ineligible, their period(s) of ineligibility and their current eligibility status. This also includes persons reported by the Risk Management Agency for suspension/disqualification/debarment. Type 65 CAT Fee Type 65 records are submitted along with Type 60 (Ineligible Producer) if Receivable Record the debt is all or partially due to unpaid CAT fees Type 70 Record Type 70 records are submitted monthly by AIPs for their SBOB to reflect the current status of the AIP Database Type 71 Record Type 71 records are returned by RMA identifying any differences at the state level from the SBOB data. Type 81 Record Type 81 records are output records that are initiated by the setting of Policy Holder the Experience Inquiry flag on the Type 14 record (position 92) for an Tracking Experience eligible crop insurance contract. Inquiry If the Experience Inquiry flag is a ‘Y’ only the previous year information will be accessed.

If the Experience Inquiry flag is a ‘F’ the previous five years of information will be accessed

Both the one-year and five year inquiries are based on the ID Number from the associated Type 10 record (position 82) to perform a search against the data to locate all information for the producer and any 2nd Draft February 23, 2010 RMA-Appendix III 31

SBI’s for the crop/state/county contained in the requesting 14 record. The data retrieved is imbedded in the “body” of the Type 81 record (positions 21 - 331) in the same field order and format as that specific in the record type. All Type 10, 11, 14, 15 and 21 records found are returned to the requesting AIP. The Type 14 record that requested the inquiry is imbedded in the Type 81 record when: 1) the value of the Experience Inquiry flag is an invalid value, 2) no prior year records were found for the producer, or 3) when the producer’s prior year insurance was with the requesting AIP. RMA may limit repeated Policy holder tracking requests.

B. eDAS Processing Considerations

1. RMA maintains all eDAS transactions in a database. Exception for new eDAS format, this will be the most recently accepted transactions stored in the database. Once an original, modify, delete, or cancel passes all edits and therefore is accepted by eDAS, it will be copied to the Policy database.

2. eDAS does not require the bundling of an entire set of sections for a policy. Once the data is accepted only the ‘KEY’ and data being modified will need to be resent.

a. Note - under the new eDAS format on an update, only the key fields that define the sections are required plus any changed fields or new sections.

3. Change flag will default to 2 and process flag will default to 1 unless otherwise indicated. A section will inherit the change flag and/or process flag of the parent section unless set by that section. Example: .

4. Acceptable sections and specific handling considerations are as follows:

The AGENT section (Exhibit 112) is used to record/report agent information. This data will be used by RMA to identify agents, provide agent counts for AIP, facilitate the creation of the Agent Location Directory and RMA planning purposes. eDAS will separate agencies for an agent by using the DETAIL_NUM, listed on the APPENDIX III Agent AGENT section in the DETAIL section. Each DETAIL_NUM represents a separate agency (i.e. Agent ID Code). Use ‘comma delimited’ to list multiple directory counties for an agent (Example: 1,2,215). The acceptance of PRODUCER and PREMIUM are dependent on the acceptance of a valid agent SSN. Only report licensed and/or certified agents who are actively participating in the delivery of RMA approved livestock and AGR/AGR-L products. Records will be rejected if the individual agent is currently disbarred or suspended. The ADJUSTER section (AGR/AGR-L, Exhibit 111) is used record/report loss adjuster information. Indemnity section (AGR/AGR-L

2nd Draft February 23, 2010 RMA-Appendix III 32

Exhibit 151-2) is dependent on acceptance of a valid loss adjuster SSN Adjuster Data will be rejected if the individual adjuster is currently disbarred o suspended. The Employee section (Exhibit 113) is used to record/report employee information. The company is required to report employee (other than agent or adjuster) if the employee was required to complete a COI Questionnaire under Employee MGR098-001 when the response to COI question #1 or #2 was ‘YES’ Deleted: ¶ ¶ The Conflict section (Exhibit 118) is used to record/report COI ¶ information. The company is required to report COI information if any ¶ employee has indicated a conflict with a policy. An Agent, Adjuster or ¶ ¶ Employee section must be accepted for the AIP and COI Respondent ¶ Conflict Tax ID before a Conflict Section will be accepted. Reviewer The Entity section (Exhibit 121) is used to record/report the producer Deleted: The REVIEWER section (Exhibit 116) is used to record/report reviewer information. For Entity information Livestock the AIP is required to review a minimum The SBI section(Exhibit 126) is used to record/report substantial of 5 percent of the insurance contracts and 5 percent of indemnified contracts. This data will be used by business interests information related to the entity. The company is RMA to facilitate compliance analysis. Premium required to collect and report all entities with significant business and indemnity that have been reviewed (flagged) are dependent on eDAS acceptance of a reviewer. interests. This data will include SSN, EIN, and share of the SBIs. Reviewer SSN reported on premium and indemnity SBI will be verified against the reviewer database. Policy The Policy section (Exhibit 122) is used to record/report the policy number The FUND section (Livestock, Exhibit 130 and AGR/AGR-L, Exhibit 131) is used to record/report fund designation information. Livestock - eDAS will generate initial fund data with fund designation flag set to ‘C’ (Commercial Fund) when premium is accepted AIP may designate to Private Market Fund by resubmitting fund data with flag set to ‘P’

within two Federal workdays after the acceptance date of premium

(fund lockdown date). Example: premium accepted by eDAS/UCM Monday, lockdown will be Wednesday at midnight. If change flag equals 3, AIP must submit a request to Reinsurance Services Division (RSD) for approval. Fund AGR/AGR-L - The Fund section will be used to designate for the crop/plan Residual,. If a crop/plan was established into the Assigned Deleted: Residual Risk Fund the crop/plan can be timely removed and automatically established in the Commercial Fund.

The PAYMENT section (AGR/AGR-L, Exhibit 124) is used to record/report payments by producers for each policy by the monthly transaction cutoff date for the calendar month following the billing Payment date. Only one payment section per payment type code will be accepted for the policy. When reporting state subsidy use payment type code “4”. The Crop Policy section (Livestock, Exhibit 119 and AGR/AGR-L, Exhibit 123) is used to record/report the crop, insurance plan, and location county.

A policy cannot be active for both livestock products (LGM and LRP)

2nd Draft February 23, 2010 RMA-Appendix III 33

for a commodity at the same time within the same reinsurance year and location state. The existing policy can be cancelled if the coverage period has ended and the producer wants to insure another livestock product. Example: Product 1 was purchased for 90 days of coverage. At the end of that coverage the insured can cancel product 1 and

purchase product 2 during the next sales period.

Crop Policy For AGR/AGR-L, only 1 crop policy per Tax-ID (Entity) nationwide is allowed. Cannot have both insurance plans. The PREMIUM section (Livestock, Exhibit 135-0 & 140-0 and AGR/AGR-L, Exhibit 151-0) is used to record/report premium and liability information.

Insurance plan will determine the availability of eDAS and type of data

necessary in submission of premium. Premium is dependent on eDAS

acceptance of agent, entity, SBI (if applicable) and reviewer (if applicable) and the acceptance by the UCM. Coverage may not be available if the UCM has been expended. When premium is accepted eDAS will assign an approval number. If change flag equals 3, AIP must submit a request to Reinsurance Services Division (RSD) for approval.

For AGR/AGR-L, all detail information must be submitted each time any information is updated. The detail section contains information Premium that’s used in the validation and determination of premium. The DISBURSEMENT section (AGR/AGR-L, Exhibit 150) is used to Disbursement record/report disbursement information The INDEMNITY section (Livestock, Exhibit 135-2 & 140-2) and AGR/AGR-L, Exhibit 151-2) is used to record/report indemnity information. Indemnity is dependent on eDAS acceptance of agent, entity, SBI (if applicable), premium, reviewer (if applicable), and adjuster (if applicable). AIP is responsible for determining if an

indemnity is due and submission of data to eDAS for validation and

Indemnity acceptance. If change flag equals 3, AIP must submit a request to Reinsurance Services Division (RSD) for approval.

5. Following is an example of the XML_TEMPLATE for AGR/AGR-L:

2nd Draft February 23, 2010 RMA-Appendix III 34

2nd Draft February 23, 2010 RMA-Appendix III 35

D. Example of XML_TEMPLATE for Livestock:

2nd Draft February 23, 2010 RMA-Appendix III 36

2nd Draft February 23, 2010 RMA-Appendix III 37

E. Example of XML error layout:

F. Example of XML warning layout:

G. Example of XML Disbursement with process flag 1, 2, or 3 where an Indemnity already exists. Automatic deletion of Indemnity is required:

//Automatic deletion of Indemnity by eDAS

//Any other XML sent by company for this policy

H. Example of XML Indemnity with process flag of 3 (delete) causing Disbursements to be set to warnings automatically by eDAS.

2nd Draft February 23, 2010 RMA-Appendix III 38

//eDAS automatically does an update on Disbursement(s) and sets them to have warnings.

I. Example of XML message layout:

C. Ineligible Tracking System Processing Considerations

The PASS edit process accesses the ineligible tracking system database to validate policy records. PASS will reject eligible crop insurance contracts for a producer if the applicable sales closing date/termination date for the crop in the county falls during a period of ineligibility. Consider the following examples:

Single Sales Closing Date Prior Year Term Date Producer  Producer Became Policy rejects for the crop is the same as the Reported as Ineligible on 3/15/2010 since the sales closing date is Sales Closing Date Ineligible  A policy is submitted greater than or equal to the for a crop with sales date of the ineligibility. If closing date and prior the sales closing date had year termination date of been prior to the date of 3/15/2010 ineligibility, the crop policy would have been accepted. Prior Year Term Date Producer  Producer became The policy would be rejected is the same as the Reported as ineligible on 9/30/2009 for that crop since the sales Sales Closing Date Ineligible  Producer became closing date falls within the and has eligible on 3/16/2010 period of ineligibility. If the Become  A policy is submitted eligible date had been Eligible for a crop with a sales 3/15/2010, the crop policy closing date and prior would have been accepted. year term date of 3/15/2010

Prior Year Term Date Producer  Producer became The policies for Crop 1 and is the same as the with more ineligible on Crop 3 would be rejected Sales Closing Date than one 9/30/2009 since the sales closing dates period of  Producer became fall within the period of ineligibility eligible on ineligibility. 2nd Draft February 23, 2010 RMA-Appendix III 39

12/01/2009  Producer became The policy for Crop 2 would ineligible on be accepted since the sales 2/01/2010 closing date for that crop  Producer became falls within a period of time eligible on 3/15/2010 that the producer is eligible.  A policy is submitted with 3 crops: o Crop 1 – SCD = 10/31/2009 o Crop 2 – SCD = 1/31/2010 o Crop 3 – SCD = 2/28/2010 Prior Year Term Date  Producer became ineligible on The policy would be rejected is later than the Sales 4/15/2010 for that crop since the prior Closing Date  A policy is submitted for a crop with year termination date is the sales closing date of 3/15/2010 and same as the ineligible date. prior year termination date of The prior year termination 4/15/2010 date is used to determine eligibility in this situation because the producer would unfairly be allowed a policy for the next crop year if the sales closing date had been used. If the sales closing date had been used to determine eligibility, the producer would have no penalty for not paying for the prior year policy premium/CAT fees by the term date. Multiple Sales Closing Dates Producer New Eligible crop ineligible on first Producer eligible by Record for second SCD will insurance contract SCD second SCD be accepted Continuing eligible Producer Record will be rejected because producer must be crop insurance ineligible on 1st eligible on the 1st sales closing date to be eligible for contract SCD the crop for the submitted year Agent Eligibility  Agent is Reported  Eligible crop Insurance  Agent is eligible to write Contract 1 as Ineligible on Contract 1 – ll Record because the agent signature date is 9/10/2010 agent signature date = prior to the ineligible date.  Agent becomes 9/8/2010  Agent is ineligible to write Contract eligible on  Eligible Crop Insurance 2 because the agent signature date 9/10/2015 Contract 2 – 11 Record falls between the agent’s eligible agent signature date = and ineligible dates. The 11 record

2nd Draft February 23, 2010 RMA-Appendix III 40

9/14/2010 would reject. Loss Adjuster Eligibility  Loss adjuster  Loss 1 – Type 21 record  The loss adjuster is ineligible for becomes loss adjuster signature Loss 1 because the loss adjuster ineligible on date = 12/08/2010 signature date falls between the loss 12/3/2010  Loss 2 – Type 21 record adjuster’s ineligible and eligible  Loss adjuster loss adjuster signature dates. becomes eligible date = 11/30/2010  The loss adjuster is eligible for Loss on 12/3/2014 2 because the loss adjuster signature date is before the loss adjuster became ineligible.

D. Duplicate Edit Processing Considerations

1. The duplicate edit process is designed to reject duplicate eligible crop insurance contracts or identify possible duplicate eligible crop insurance contracts reported to RMA. The process determines the ownership of an eligible crop insurance contract and is based on the definition of a duplicate eligible crop insurance contract and a possible duplicate eligible crop insurance contract key. Duplicate or possible duplicate eligible crop insurance contracts are identified by PASS errors and are reported to companies weekly.

2. In the case of Duplicate eligible crop insurance contracts (i.e. same tax id number, tax id type, entity type, location state, location county, crop code, and type code (grapes only crop code 0052 and 0053)), PASS will determine the owner IP based on signature date and transferred cancellation fields on the Type 14 record.

3. If any of the duplicate eligible crop insurance contracts are indicated as a ‘Transfer and Cancellation’ eligible crop insurance contract on the 14 record, the Dup process will use the earliest signature date for the current sales period to determine ownership. The ‘sales period’ starts the day following the earliest sales closing date for the previous crop year and continues through the latest sales closing date for the current crop year. If none of the duplicate eligible crop insurance contracts are indicated as being a ‘Transfer and Cancellation’ eligible crop insurance contract, then ownership will be determined by earliest signature date without regard to the sales period.

4. Companies will be notified of Duplicate eligible crop insurance contracts on a batch transmission basis through the PASS edit process. In addition, on the first business day following the transaction cutoff date for weekly data reporting, companies will be provided a summary report identifying the count of duplicate policies with another AIP and the number of ownership eligible crop insurance contracts where another AIP has a duplicate eligible crop insurance contract.

5. After the weekly cutoff, the RORYOWN and RORYDUP reports will be generated from the duplicate eligible crop insurance contract information captured duringPASS processing. For RY 2011 and succeeding years, RMA will removePASS determined duplicate crop/county eligible Deleted: 2010 crop insurance contract records (Type 14 records), in the RORYDUP report, from the Dup process and the Policy databases.

2nd Draft February 23, 2010 RMA-Appendix III 41

6. Once this weekend process is complete, the PASS determined 'owner' eligible crop insurance contract will remain in the PASS System and should not receive a duplicate error when re- transmitted. AIPs must take action to ensure that duplicate eligible crop insurance contracts listed in the RORYDUP report are NOT re-transmitted toPASS. Formatted: Indent: Left: 0.5", No bullets or E. Common Land Unit Validations numbering, Don't keep with next, Don't keep lines together, Tab stops: Not at 1.25"

RMA should clearly document their proposed validation of common land unit data, including distribution of the CLU shape files, validations performed relative to the distribution of those files, and any other process that could impact the specific edits being performed on the Type 27 CLU data fields. RMA cannot enforce any minimum CLU reporting requirement for the 2011 reinsurance year if the specific procedures necessary to support those validations are not issued in the CIH by 9/1/2010 and the LAM by 12/31/2010.

14 PASS Reports ______

PASS provides AIPs the following reports, transmission data files and reference files to assist error resolution and status.

Reports Summary Report Provides transactional, financial and error statistics on each transmission. The (.sum) report identifies the input file name, the run date and time, and the received date and time. The transactional statistical section provides counts by record type of: submitted; accepted; rejected; and suspended records. The financial statistical section provides the associated dollar amount of: submitted, (if a type 97 record is included in the transmission); accepted; rejected; and suspended records. The error statistics sections lists the error code and message received and the number of records in error. Premium and Loss Provides by crop, the dollar amount of premium and indemnity rejected by error code Error Report (.rp2) combination. The number of records and eligible crop insurance contracts are also listed. Error Report (.rpt) A formatted report by eligible crop insurance contract listing the record(s) and field(s in error. It identifies the data in error and what is expected in the field. Transmission Files Rejected File (.rej) Contains the records rejected with errors by PASS with an additional 50 bytes of data used internally by PASS. Error File (.err) Lists the record key with an error, the error code, data in error and the expected data Accepted File (.acp) Contains the records accepted by PASS with an additional 50 bytes of data used internally. AIPS may request this file be placed in their directory. Accepted Fund Designation File Contains the Type 9 records accepted by PASS with an additional 50 bytes of data (.fun) used internally. This file is provided to AIPs confirming fund designation by RMA Weekly Reports/Files Duplicate Report Contain eligible crop insurance contracts identified by PASS as being a duplicate. Files Issued on the IPSERVER every Monday at 12:00 p.m. IPRYSUM.TXT Report file showing duplicate policy and owner policy summary information for IP/RY IPRYDUP.TXT Data file containing duplicate policy identification along with owner policy 2nd Draft February 23, 2010 RMA-Appendix III 42

information for IP/RY IPRYOWN.TXT Data file containing owner policy identification along with duplicate policy information for IP/RY Mini-40 Reports Generated to the IP SERVER every Monday at 12:00 p.m. and on Tuesday evening a 6:00 p.m. Lists of premium and indemnity by policy, with totals accepted by PASS the previous week. Written Agreement Generated to the IP SERVER every Monday at 12:00 p.m. Each IP will be provided Reports with two files. A file for their own written agreement policy data that has been accepted through PASS. The second file for the written agreements offered by the RMA Regional Office for that IP. Files are made available to the IPs via the “ip server” and to the RO’s via the RMKC00a system. The file naming conventions are “ipyywaip.txt” (IP data) and “ipyywaro.txt” (RO data) Reference Files Insurance Validation files used by PASS. These files will be updated on the following Formatted Table Control frequency (does this vary by ICE file and should be referenced for each ICE Element (ICE) file?). Files will be released to AIPs on the following frequency (does this Files vary by ICE file and should be referenced for each ICE file?). AIPs will be notified of updates to the ICE files as follows (this process should be uniform for all ICE files, and be patterned along RMA’s current ADM release process). Each field (or combination of fields) that is validated by an ICE file will be annotated with the applicable ICE file in the Rules column of each applicable PASS record type. A complete description of the content of the ICE files follows: Max Yield Text Contains maximum yield values used by PASS for edits for the AIPs use. Generated Files (isn’t this an to the Miscellaneous Files directory on the ftp server on Monday morning and when ICE file?) the files are updated during the week. Contains the highest yield, corresponding maximum warning yield level (beyond which a yield must be reviewed), the maximum yield allowed and any override value documented and approved by PDD for each insurable State, Crop, County, Type, and Practice. Default values are provided at the State and Crop level. Error Message Text Contain the associated text message for the numeric PASS errors. These files can be Files (isn’t this an found in the Miscellaneous Files directory by RY. ICE file?) Land Location File Consists of Public Land Survey identifiers indexed by state and county. This is a cop (isn’t this an ICE of the file used to validate PLSS identifiers submitted by AIPs on the type 11 and 27 file?) records and on exhibits 135 and 140. Data is derived from PLSS spatial data (i.e., GI format) collected and maintained by RMA. Modifications are made (a) when queries from AIPs are validated and (b) when newer or more complete PLSS spatial data is acquired for a specific state. ICE D00001 Contains ??? values used by PASS for edits. Formatted Table ICE D00002 … Common Land Contains spacial data for the polygons of Common Land Unit areas designated Unit File by a generic CLU Global Unique Identifier (GUID). Files will be released quarterly.

15 – 20 Reserved

2nd Draft February 23, 2010 RMA-Appendix III 43

Part 3 Accounting

21 Accounting Processing Considerations______

A. All reports submitted for reimbursement of any funds payable by FCIC under the SRA must be certified by an authorized officer or authorized employee of the Company named in Section IV(a) of Appendix II that the information in the report is correct and accurate. Certifications Comment [d3]: Moved from SRA Section IV(b) may be provided either on hard copy reports or in an electronic method (e.g., signed PDF document submitted via e-mail for 2011 and prior reinsurance years, or electronically via ITM requirements beginning with the 2012 reinsurance year)

B. Timing of Monthly Payments

1. RMA will generate and remit payments due to the AIP in accordance with the SRA, based on data validated in PASS, no later than the first banking day after the 14th calendar day following RMA’s receipt of both the detailed reinsurance contract data file, and the certified (signed) hard copy or electronic monthly/annual operation report.

a. FCIC will pay the net amount due from FCIC to the AIP as reflected in the FCIC- generated report, reduced or increased where appropriate, for any differences between the reports submitted and the data validated.

i. FCIC will net together for payment purposes, multiple reinsurance year reports ii. FCIC will make payments to AIPs via Electronic Funds Transfer (EFT) through the U.S. Treasury iii. FCIC will pay interest in accordance with the interest provisions of the Contract Disputes At (41 U.S.C. 601 et seq.) on any payment which is not sent to the AIP by the dates provided by the SRA.

b. RMA generated reports will be regenerated to contain AIP entries on the Premium Due and Premium Due Without Payments Worksheets upon receipt of the certified report/worksheet from the company if received by the due date for monthly reporting.

B. Reimbursement of Losses

1. For any AIP that elects to use escrow funding: FCIC will fund the escrow account within three (3) business days after the loss transactions are accepted in FCIC’S Escrow System. Beginning with the October monthly settlement report for the reinsurance year (e.g., October 2010 will be the first accounting report for the 2011 reinsurance year), the escrow funded amount, as of the monthly transaction cutoff date will be reconciled with the escrow loss data accepted on the monthly or annual report. Any escrow requests which have not been funded as of the monthly transaction cutoff date will not be included in that month's report. Any difference in the escrow funded amount and the losses validated by RMA will be refunded monthly by the AIP to FCIC.

2. AIPs may also report loss data through PASS prior to check issuance (for validation purposes), in accordance with instructions on the Type 20 record descriptor contained in this Appendix.

2nd Draft February 23, 2010 RMA-Appendix III 44

a. Losses reported in this manner will not be funded Through Escrow, and will not appear on the Monthly/Annual Operations Report.

b. To obtain escrow funding, AIPs must re-submit loss data consistent with the Escrow Agreement and instructions for the Type 20 record descriptor contained in this Appendix.

3. Any AIP who elects not to utilize Escrow Funding will be reimbursed on the Monthly/Annual Operations Report for paid losses which have been validated and accepted in PASS as of the monthly transaction cutoff date. Any loss will be considered paid by the AIP, when the instrument or document issued as payment has cleared the AIP’s bank account.

E. Administrative Expense Reimbursement Formatted: Numbered + Level: 1 + Numbering Style: A, B, C, … + Start at: 4 + Alignment: Left + Aligned at: 0.5" + Indent at: 1. The FCIC will pay the AIP an A&O Subsidy as specified in the SRA beginning with the 0.75" October Monthly Operations report for the reinsurance year for the 2011 reinsurance year, and beginning with the October monthly settlement report following the end of the reinsurance year for 2012 and succeeding reinsurance years.

a. All A&O Subsidy amounts paid are subject to correction at any time, and by the Monthly/Annual Operations Report following detection of the error.

b. Any rejected eligible crop insurance contract due solely to an identified PASS edit error, will be fully compensated on that month’s accounting report.

2. The A&O Subsidy applicable to the eligible crop insurance contract will be reduced whenever the identified required LRR data has not been timely and accurately provided to RMA or such information is revised after the LRR Transaction Cutoff Date.

a. If the required LRR data first passes acceptance edits after the LRR Transaction Cutoff Date or is revised after the LRR Transaction Cutoff Date, the A&O Subsidy will be reduced as defined in Section IV.b.(7)(A) of the SRA

See Exhibit 5-1.

Deleted: <#>The A&O Subsidy applicable to the eligible crop insurance contract will be 4. Reimbursement for CAT Loss Adjustment Expense will be calculated in accordance with the reduced in accordance with Section IV.b.(9) of SRA, and will be included on the Monthly/Annual Operations Reports beginning with the same the SRA.the chart below, when acreage records are accepted in PASS for the first time monthly settlement report that contains initial A&O subsidy payments for a specific reinsurance after the transaction cutoff date for the 6th full year (see C.1. above). week after the week which in includes the latest acreage reporting date as specified in the ADM and PASS processing considerations.¶ 5. Any payment received under Section IV.h. of the SRA, must be paid by the last business day of Page Break the month for the Monthly/Annual Operations Report cutoff following RMA’s notification to the ¶ ¶ ... [2] AIP of the amount due.

F. Interest Calculations Formatted: Numbered + Level: 1 + Numbering Style: A, B, C, … + Start at: 4 + Alignment: Left + Aligned at: 0.5" + Indent at: 1. The AIP will be charged interest in the following cases: Late payments of the balance due on 0.75" Monthly/Annual Operations Reports, overpayment by FCIC of losses or expense reimbursements, 2nd Draft February 23, 2010 RMA-Appendix III 45

increases in the Premium Due Without Payments Report, and on Premium Variations and on uncollected premiums not paid which are reported on the Premium Due Worksheet. The AIP will pay FCIC interest at the annual fixed rate of 15% (See Exhibit 6).

2. If the balance due FCIC on the Monthly/Annual Operations Report is not received by the last banking day of the month, via electronic transfer to FCIC’s account at Treasury, interest will attach from the day following the last banking day of the month and will be charged through the day funds are received by Treasury.

3. The AIP will repay, with interest, any amount paid to the AIP by FCIC which is subsequently determined by FCIC or the AIP, to have been not due to the AIP, such as overpaid indemnities or excessive expense reimbursements. Interest begins accruing based on the date of the Final Determination letter. (See Interest Calculation Exhibit 1-12 Example 2).

4. Increases in premium amounts for an eligible crop contract which occur after a billing date are reported on the Premium Due Without Payments Report. Interest on these increased amounts will accrue from the first of the month following the AIP Payment Date, and will accrue through the end of the month for the monthly report on which the increase was included (See Exhibit 6-2 Example 3).

5. The AIP will pay interest on any uncollected premiums if the uncollected premiums are not paid to FCIC by the month following the month of the billing date. Interest will attach on any uncollected premiums from the first of the month following the month of the billing date. A full month’s interest will be charged for any month or portion of a month that the uncollected premiums are not paid to FCIC (See Exhibits 6-4 and 6-5).

6. All payments are subject to post audit by FCIC.

G. AIP Accounting Formatted: Numbered + Level: 1 + Numbering Style: A, B, C, … + Start at: 4 + Alignment: Left + Aligned at: 0.5" + Indent at: 1. All accounting reports must be downloaded by the AIPs via telecommunications processing. 0.75" These reports will be made available on a monthly basis. AIPs may query the telecommunications facility any time to see if the accounting reports are ready to be downloaded.

2. AIPs must monitor the escrow account balance and maintain sufficient collateral coverage to insure timely funding of all loss data. If there is a shortfall of funds in the escrow account, it is the AIPs responsibility to deposit funds to cover any shortages.

3. Monthly Operations Reports are required to be submitted through annual settlement time. Annual settlement Operations Reports must continue to be submitted for any month that revised data are submitted. Court action, compliance, audit or investigative related finds by the Government or the AIP after the October Accounting cut-off following 5 years from the beginning of the reinsurance year must be reported to RMA and will be processed manually. Operations Reports must be received by RMA by the last banking day of each month corresponding to the transaction cut-off date.

4. Uncollected premiums for each billing date must be reported by the AIP by the transaction cutoff date for the Monthly Operations Report following the month of the billing date. Interest will be 2nd Draft February 23, 2010 RMA-Appendix III 46

charged on all uncollected premiums not paid to FCIC by the AIP payment date from the first of the month following the billing date at the rate of 15% per annum. The AIP must enter data into the appropriate columns on the Premium Due Worksheet to indicate their intent whether to pay uncollected premiums and return a signed copy of the report/worksheet along with the report, to be received by RMA by the last business day of the applicable monthly transaction cutoff date.

5. When producer premiums are collected by the AIP before the billing date, any premium collected during a calendar month must be reported on the Monthly Operations Report submitted during the next calendar month after the billing date and payment made by the AIP Payment Date. All premiums not collected must be paid to FCIC at annual settlement whether or not they are collected from insured.

6. For the purpose of collecting CAT fees and accrued interest from insureds, there are responsibilities that must be undertaken by the AIP and FCIC. These responsibilities shall be in accordance with 7CFR 457.8, which states “Interest will accrue at a rate of 1.25 percent simple interest per calendar month, or any portion thereof, on any unpaid amount owed to us or on any unpaid administrative fees owed to FCIC.”

a. AIPs are responsible for calculating and collecting interest on CAT fees in accordance with 7 CFR 457.8 beginning 30 days after the premium billing date until the crop termination date.

b. AIPs shall transmit a 60 and 65 record through the Ineligible Tracking System for the principle amount only, for unpaid CAT fees within 7 to 21 days after the crop termination date. At this time these fees become Federal debt and all collection efforts on the part of the AIP shall cease.

c. AIPs are responsible for any questions that an insured may have regarding the validity of this debt or payment made prior to the crop termination date. After the crop termination date, all questions regarding amounts due including interest accrued, shall be referred to RMA.

i. Records regarding an unsatisfied debt pertaining to a CAT policy must be retained indefinitely in accordance with Section IV.G.6. of the SRA.

ii. If an AIP receives payment for a Federal debt, they are to transmit a type 12 record with a payment type code of “02” for the entire amount received within 7 days of the receipt of the payment. (Timing is critical since the debt may be referred by RMA to Treasury for cross servicing and any amounts due the insured from any Federal agency will be reduced by the Federal debt that includes CAT fees and accrued interest.

iii. RMA shall calculate interest in accordance with 7 CFR 457.8 on any unpaid CAT fees reported to RMA beginning on the termination date until the debt is satisfied.

iv. RMA will answer any questions regarding the amount of the Federal debt or any payments made after crop termination since subsequent interest may have accrued.

v. RMA shall take over all collection efforts of unpaid CAT fees upon termination date and the submission of the type 60 and 65 records.

2nd Draft February 23, 2010 RMA-Appendix III 47

vi. RMA may refer the Federal debt to Treasury for cross servicing.

7. Escrow funding and reported loss data will be reconciled on each monthly and annual operations report.

8. Any aggregate underwriting loss of the AIP will be paid to FCIC by the AIP with each monthly operations report as calculated by the reinsurance run report generated by RMA. Any underwriting gain due the AIP will be paid at annual settlement.

9. The AIP must enter data into the appropriate columns on the Premium Due Without Payment Worksheet to indicate any increase in premium and return a signed copy of the report/worksheet along with the monthly operations report, which must be received by RMA by the last business day of the month corresponding to the transaction cutoff date (See Exhibit 6-3).

a. The insured's premium due is calculated by subtracting the paids and loss-credits from the producer premium amount for each policy and billing date. The total due is then summarized by billing date.

10. The new amount due FCIC as reflected in the Monthly or Annual Operations Report, must be paid by EFT by the later of, 10 calendar days of being issued by RMA or last business day of each month corresponding to the transaction cutoff date for that month. When payment is submitted to FCIC based on a report generated by the AIP or its reporting agent and supporting data is subsequently rejected, the AIP must remit the difference by EFT within seven (7) calendar days of the date the AIP was notified of the discrepancies. In instances where an AIP generated report differs from RMA generated Operations Reports, payments will be based on the RMA Operations Reports.

11. All payments due to FCIC must be deposited directly into the Corporation's account in the U.S. Treasury by EFT. An instruction guide for funds transfer deposit messages to the Treasury is provided in Exhibit 7. Information, such as agency codes, and beneficiary codes will be provided under separate cover.

12. Annual Operations Reports

a. A hard copy or electronic settlement report, called the Annual Operations Report (recap and worksheets), must be certified and received by RMA by the last business day of October following the end of the subsequent reinsurance year per SRA Section I. The report will follow the format as provided in Exhibit 1-4 of this Appendix. All reinsurance transactions for the year must be summarized and reported on the Annual Operations Report.

b. Corresponding data file transmissions for the Annual Operations Report must be successfully received in its entirety by the October monthly transaction cutoffs stated in 11.a above. The amount due either FCIC or the AIP will be calculated based on the PASS validation of the data, will be based on the RMA-generated Operations Report, and will follow the monthly reporting process.

c. The gain or loss of the AIP is calculated in the monthly Reinsurance Run Report 2nd Draft February 23, 2010 RMA-Appendix III 48

generated by RMA. Any underwriting gain will be paid on the Annual Operations Report. Underwriting loss will be calculated on the Monthly Operations Report. If the underwriting loss netted with any other amounts due results in a net amount due FCIC, payment must be received by EFT by the AIP Payment Date.

d. All discrepancies, including items appearing on the Overpaids and loss credits reported on the ADR003 and ADR 004 reports must be reconciled and eliminated from the reports prior to the last automated cycle of the reinsurance year as defined in Section 11.A.1.a. of this Appendix.

22 Accounting Reports______

RMA provides AIPs the following reports:

This report lists all policy record amounts that contain generated P/CR Memo P/CR Memo Reject amounts which were not posted. P/CR Memo amounts are rejected when the P/CR Report (Exhibit 1-10) Memo policy does not exist or when the P/CR Memo policy has zero premium. Reconciliation reports are generated in addition to the various error reports wheneve there are unusual circumstances concerning a policy or record type submitted. The purpose of these reports is to perform a verification or validation of data on RMA's database to the most current data received from the AIP. The AIP should research data appearing on the reconciliation reports and determine what action needs to be

taken to correct the discrepancies (i.e., delete, correct, in order to resubmit the

records correctly). The amount of negative financial impact to FCIC will be determined and deducted from the Monthly/Annual Operations Report. Following are the two reconciliation reports the AIP may receive:

Discrepancies of Premium by Policy Discrepancies of Losses by Policy

The Discrepancy reports, are generated when a policy record that has been submitte by an AIP does not agree with data accepted into the PASS. Reconciliation Reports (Exhibit 4)

RAS Summary Reports

The RAS generates summary reports based on detailed reinsured contract data submitted by the AIPs each month through PASS. Once data is received from AIPs electronically, the PASS processes the data through RMA edits/validations and RAS produces the summary reports. The reports are used to calculate the balance which is due the AIP or FCIC. The FCIC Detailed Policy Report shows detail policy-level information. It feeds information to the Operations Report which generates grand totals, and consists of the following:

The Premium grand total is developed from the Premium Lines Record - Type 11 and 13, and is reported as summarized policy detail for all lines and all crops Premium associated with a policy. Premium is totaled by Crop Year. The Paid grand total is developed from the Payment Record - Type 12 (Payment 2nd Draft February 23, 2010 RMA-Appendix III 49

Type 00) and the RAS currently shows policy detail for the net paid amount. The paid amount should not include administrative fees and must be ≥ zero.

The net paid represents the premium collected by the AIP from the producer (insured). An overpaid amount may exist when a producer overpaid his premium.

Paid The Loss-Credit grand total is derived from the Loss Total Record Type 20, which consists of M-Memos and P-Credit Memos. M-Memos are premium amounts due (by producer) that have been deducted from a loss payment by the producer from losses received on the same policy. P-Credit Memos occur when premium due on another policy (in same reinsurance year) is designated with a

"P" in the Type 20 record which enables the amount to be deducted from a loss

payment on the policy incurring a loss. All other amounts designated in the "1st - 4th Total Amounts" on the Type 20 record appear as a single line item entitled "Loss Deductions (F, R, O)" on the Loss-Credit Operations Report. RAS will generate the designated ‘P-Credit Memos’ into the Loss-Credit column of the Monthly Operations Reports to eliminate out-of-balance conditions. The sum of each loss deduction code for a policy should never be less than zero. An overpaid amount may exist when an excessive amount of an insured’s loss was deducted from his policy. The Subsidy grand total is the Total Premium minus the Producer Premium Subsidy submitted on the Premium Lines Record - Type 11. The Loss grand total is derived from the Loss Line Record - Type 21 or 22, which consists of all losses reported by the AIP. The losses are reimbursed to the AIP through the automated escrow process. On a monthly/annual basis, the total of Total Losses will be compared to the sum of "Loss-cr., Escrow, and Drafts" and "Loss Deductions (F, R, O)" and FCIC will pay the lesser amount. RMA will also

adjust the amount of "Drafts Issued (Escrow)" included in the Monthly/Annual

Summary Report on the line for "Loss-CR, Escrow and Drafts" to the lesser amoun of "Previous Escrow Funded" or "Less Drafts Issued (Escrow)." This will avoid an potential overpayments by FCIC on the Monthly/Annual Summary Reports. Losses Cost Share The total AGR or AGR-L Cost Share reported as additional subsidy.

Monthly Operations Report (Exhibit 1)

This report shows the grand totals of all insurance policies carried by each AIP and provides the balance due the AIP or FCIC. The remainder of the entries on the Operations Report are calculated from entries which the AIP has made on the Premium Due and Premium Due Without Payments Worksheets or derived from other reports generated by RAS. Following is a description of each line item on the report. All line items represent cumulative totals.

Net Expense This item represents administrative expense reimbursement based on a percentage Reimbursement of total premium on all non-CAT crop policies. This item also includes the CAT Adjustment loss adjustment expense based on the total CAT premium. The net installment adjustment is supported by the FCIC Installment report. Exhibit 1-2. 2nd Draft February 23, 2010 RMA-Appendix III 50

Net Contingency Fund Sales (LRR) Reduction, Late Filed Acreage Reduction, Excess Premium Penalty, Compliance Penalty and Agreement Termination Penalty Less Premium Collected Insured's premium collected by the AIP. Escrow is the lesser of the “previous Escrow Funded” or the amount of “Drafts Issued (Escrow)” (See Items u, v) Escrow and Drafts Drafts represents the amount paid by the AIP for losses paid to producers if the AIP is not participating in Escrow. It is determined from Type 20 records which contain a “D” for drafts. (F, R, O) - Amounts reimbursed by the FCIC to the AIP for administrative fees (F), recovery of previous or subsequent year premium (R), or other (O) to include Loss Deductions interest deduction amounts, which the AIP deducted from their loss reimbursement request AIP Previous The cumulative amount of other payments received by FCIC via electronic transfer Payment to Treasury by the AIP. FCIC Interest Paid The cumulative total of all interest paid to AIPs by FCIC for late payments, etc. Adjustment due Amount of reimbursement by FCIC to the company for litigation or other approved Company expenses. This amount has to be reviewed and approved by RSD Administrative Fee Net fee due FCIC supported by supplemental administrative fee reports (Exhibit 1-5). Adjustment Reduction Due to Reconciliation Report Differences Net reduction amount based on unreconciled differences from reconciliation reports that have a negative financial impact to FCIC. FCIC Interest/Penalty Represents interest or penalty assessed against the AIP Adjustment Due FCIC Any overpayments that FCIC has made to the AIP FCIC Previous Cumulative amount of all payments made to the AIP by FCIC for the current reinsurance Payment year Escrow Funded Represents the escrow amount the AIP has been funded. The total is summed up to the current cutoff date of the Monthly Operations Report. Paid Previous Worksheets Amounts paid to FCIC on previous worksheets Represents the loss taken from the "Reinsurance Run" report. This amount is a calculation of the AIP’s loss based on entries made in the Appendix II, together wit the Standard Reinsurance Agreement applicable to each respective Reinsurance Underwriting Loss Year. The report is a summation of reinsured data displayed the fund, state and national (grand total) levels. Subtotal Total of lines preceding this line from the FCIC Due/Paid Column on the report Total from Current Worksheet Represents the combined total from the Premium Due and Premium Due Without Payment Worksheets Balance Due AIP (+), FCIC (-) Total balance due the AIP or FCIC Represents the amount of escrow the AIP has been funded, and is reported here Previous Escrow when FCIC issues the funds to the AIP. The total is summed up to the current cuto 2nd Draft February 23, 2010 RMA-Appendix III 51

Funded date of the Monthly Operations Report Less Drafts Issued (Escrow) Represents the amount of checks issued to producers for losses, and is accumulated from an “E” that was validated and accepted in PASS from the type 20 record Escrow Balance Represents the difference between the “Previous Escrow Funded” line and the “Less Drafts Issued (Escrow)” line

Annual Operations Report (Exhibit 1-4)

This report shows the grand totals of all insurance policies carried by each AIP and provides the balance due the AIP or FCIC. The following provides a description of how each line item on the Annual Operations Report is calculated. All line items represent cumulative totals.

Represents administrative expense reimbursement based on a percentage of total premium on all non-CAT crop policies less the reduction for Late Reporting Expense Reductions. The CAT loss adjustment expense which is based on the total CAT Reimbursement premium. The net installment adjustment is supported by the FCIC Installment report Adjustment Net ) Late Reporting Reduction, Late Filed Acreage Reduction, Excess Premium Penalty, Contingency Compliance Penalty and Agreement Termination Penalty Fund Less Premium Collected Total premium whether or not collected by the AIP

Loss-CR, Escrow is the lesser of the “Previous Escrow Funded” or the amount of “Drafts Issued Escrow and (Escrow)” (see items w, x). Drafts Loss Credits (M, P) Amounts reimbursed by the FCIC to the AIP for administrative fees (F), recovery of previous Loss or subsequent year premium ®, or other “O” to include interest deduction amounts, which the Deductions (F, AIP deducted from their loss reimbursement request. R, O) Subsidy Cumulative amount of all risk subsidy Additional Subsidy AIP Previous Cumulative amount of other payments received by FCIC via electronic transfer to the Treasury Payment by the AIP FCIC Interest Paid Cumulative total of all interest paid to AIPs by FCIC for late payments, et. Adjustments Amount of reimbursement by FCIC to the company for litigation or other approved expense. Due Company This amount has to be reviewed and approved by RSD Net Administrative Fee Adjustment Net fee due FCIC supported by supplemental administrative fee reports. Less Reduction Due to Reconciliation Report Net reduction amount based on unreconciled differences from reconciliation reports that have a Differences negative financial impact to FCIC FCIC Interest/Penalty Represents interest or penalty assessed against the AIP 2nd Draft February 23, 2010 RMA-Appendix III 52

Adjustments due FCIC Overpayments that FCIC has made to the AIP FCIC Previous Cumulative amount of all payments made to the AIP by FCIC for the current reinsurance year Payment Escrow Funded Represents the escrow amount the AIP has been funded Paid Previous Worksheets Cumulative interest from any worksheets Represents the gain/loss taken from the "Reinsurance Run" report. This amount is a calculation of the AIP’s gain/loss based on entries made in the Appendix II, together with the Standard Reinsurance Agreement applicable to each respective Reinsurance Underwriting Year. The report is a summation of reinsured data displayed at fund, state and national Gain/Loss (grand total) level Total of lines preceding this line from the FCIC Due/Paid Column of the operations report Subtotal Normally, this item represents the total from the Premium Due Without Payments Worksheet; Total from however, there is an exception for those companies which had deferred premium. For those Current companies, on the 1st annual report only, a Premium Due Worksheet calculating interest should Worksheet also be included in this total. Balance Due AIP (+) or FCIC (-) The total balance due the AIP or FCIC Represents the amount of escrow the AIP has been funded, and is reported here when FCIC Escrow Funded issues the funds to the AIP. The total is same as “p” above. Less Drafts Represents the amount of checks issued to producers for losses, and is accumulated from an Issued “E” validated and accepted in PASS from the Type 20 record (Escrow) Escrow Represents the difference between the “Escrow Funded” line and the “Less Drafts Issued Balance (Escrow)” line

RAS Summary Reports Adjusted for Livestock (Exhibit 9)

Summary reports are generated based on detailed reinsured contract data submitted by the AIPs each month through eDAS. The reports are used to calculate the balance which is due the AIP or FCIC.

Exhibit 9-2 shows detail policy-level information. It feeds information to the Livestock Operations Report, which generates grand totals, and will include the following for Livestock: The Premium Grand Total is developed from the Livestock Premium Data Identifier Livestock Detail Report and is reported as summarized policy detail for all lines associated with a policy. (LADR001) The Subsidy Grand Total is developed from the subsidy information submitted on the Livestock Premium Data Identifier and is reported as summarized policy detail for all lines associated with a policy The Loss Grand Total is derived from the livestock Indemnity Data Identifier, which consists of all losses reported by the AIP Monthly Livestock Exhibit 9-1 shows the grand totals of all insurance policies carried by each AIP and Operations Report provides the balance due the AIP or FCIC. Following is a description of how (LRCP001) Livestock will be reflected on the Monthly Livestock Operations Report Net A&O Subsidy Administrative and Operating Subsidy per the LPRA AIP Previous Payment Cumulative amount of other payments received by FCIC via electronic transfer to 2nd Draft February 23, 2010 RMA-Appendix III 53

Treasury by the AIP FCIC Interest Paid Cumulative total of all interest paid to AIPs by FCIC for late payments Adjustments due Litigation or other approved expense owed the AIP Company FCIC Previous Payment Cumulative total of all “Balance Due Company” amounts from all prior months reports FCIC Interest/Penalty Interest or Penalty assessed against the AIP Adjustments Due FCIC Offline (manual) corrections by the AIPs for overpaid indemnities Livestock Settlement Represents the livestock adjustments supported by the Livestock Settlement Report (Exhibit 9-3). Balance Due Company/FCIC Total balance due the AIP or FCIC

23 Escrow Reconciliation______

A. AIP Escrow Account Reconciliation must include the following information on a monthly basis: 1. Bank Reconciliation consisting of reinsured company’s name, address, bank account number, escrow account ending balance, total amounts for items in-transit, outstanding, interest, and overage/shortage. The bank reconciliation must be submitted in PDF format, certified and signed by a company officer or other company designated management official. The bank reconciliation must also be submitted in an Excel file format along with the other templates.

2. Data files in an Excel zip file format (templates attached) that provide detail for the bank reconciliation, in-transit, outstanding checks, overage/shortage, voided checks, cleared checks, check registers and interest checks.

3. Bank Statement of AIP’s Loss-Clearing Account submitted in PDF format.

4. Bank Statement of RMA’s Escrow Account submitted in PDF format.

B. The Excel zip file that is submitted to RMA must include the following eight tabs:

1. Bank Reconciliation – AIP’s must provide a bank reconciliation that presents the balance per statement, escrow request in-transit totals listed by reinsurance year, total debits, outstanding checks total, interest payable to FCIC by month, total credits, and overage/shortage total.

2. In-transit – AIP’s must provide a list of checks issued, but awaiting deposit of funds from RMA.

3. Outstanding checks – AIP’s must provide a list of checks that have been issued, but have not been presented for payment. AIP’s must monitor their list of outstanding checks for stale-dated checks over one year and follow the procedures stated on the Informational Memorandum dated February 13, 2007, for processing checks over one year old. If an action has been taken to Comment [TAB4]: RMA should specify those procedures here, obsoleting this “Informational resolve a stale check, make a note on the template. Memorandum”.

4. Overage/shortage – AIP’s must provide a list, review, and resolve all items listed as overage/shortage on a monthly basis. The company will have 2 banking cycles to reconcile and resolve any item listed as an overage or a shortage on the escrow reconciliation. AIP’s must 2nd Draft February 23, 2010 RMA-Appendix III 54

provide a brief explanation of all items listed on the overage/shortage report. Any unsettled items will be resolved with RMA and the AIP.

5. Voided checks – AIP’s must provide a list of checks that were voided for the month of the reconciliation.

6. Cleared checks – AIP’s must provide a list of checks that have cleared the loss clearing account for the month of the reconciliation.

7. Check register – AIP’s must provide a list of checks that were issued for the month of the reconciliation.

8. Interest checks - Remit interest checks on a monthly basis for interest amounts exceeding $10.00.  Interest accrued under $10 should wait until interest accrued exceeds $10.00 before sending to RMA. The total for each month must be provided on the interest tab.  Outstanding interest must be submitted on a yearly basis with the August reconciliation, even if the $10.00 threshold is not met.

C. The PDF zip file that is submitted to RMA must include the following data:

1. Bank Statement of AIP’s Loss-Clearing Account.

2. Bank Statement of RMA’s Escrow Account.

3. Bank Reconciliation certified and signed by a company officer or other company designated management official.

D. All documents must be submitted electronically. 1. A naming convention consisting of the approved insurance provider code, BNKREC, calendar year, calendar month, underscore, number one (if you have more than one account, you will used number two for the second account) followed by .zip. If you have more than one account, RMA will designate which account is number one and which account is number 2. Example: XXBNKREC0907_1.ZIP (XXcompany, Bank Reconciliation, 2009, July, account 1).

2. Template formats provided on the attached sample reconciliation must be followed when submitting the escrow bank reconciliation.

3. Connect to the kcsn204.fcic.usda.gov.You will put your files here. When the process runs to collect the input file(s), it will then move he file from your home directory, perform a few tests on it and then it will put a copy of it in both the correct directory on the rmkc00a and in the correct upload directory on the kcsn204.

E. Failure to follow above procedures will result in RMA initiating a series of notification letters from RMA to the AIPs. 1. The first letter notifying the AIP accounting staff of the issue.

2nd Draft February 23, 2010 RMA-Appendix III 55

2. The second letter will be notification to AIP management.

3. The third letter will result in a notification letter to RSD for appropriate sanctions.  Discuss closing the current account and establishing a new account.

F. Available tools: 1. RMA is providing a daily and weekly escrow file to AIP’s on the RO Server. These files can be used to assist AIP’s in their reconciliation process.

2. When using the daily file, be aware that the information on the file will reflect the information that has been submitted to RMA. The raw data file may reflect duplication due to voided and reissued checks being submitted to RMA for a particular claim. One remedy to this situation is deleting the claim on one day and resubmitting correct draft numbers for the following day.

24 Application of Paids and Loss Credits______

The application of paids and loss-credits is best demonstrated with the following examples:

A. The Loss Credit must initially be applied to the Policy and crop with the associated Claim

a) First - Unpaid Finance Charge for the crop (i.e. Interest), then

b) Unpaid Administrative Fee for the crop, then

c) Unpaid Premium for the crop

B. After the Loss Credit has been applied to the Policy and Crop with the associated Claim then proceed in the following manner:

1. Apply to the same policy, any crop, starting with the earliest Premium Bill date –

a. First - Unpaid Finance Charge (i.e. Interest) , then (Note: if multiple crops have the same bill date, apply to interest on all crops before proceeding)

b. Unpaid Administrative Fee, then (Note: if multiple crops have the same bill date, apply to administrative Fee on all crops before proceeding)

c. Unpaid Premium

C. After the Loss Credit has been applied to the same Policy and all Billed crops then it can be applied in following manner:

2nd Draft February 23, 2010 RMA-Appendix III 56

1. Apply to any related policy, any crop, starting with the earliest Premium Billed date –

a. Unpaid Finance charge (i.e. Interest)

b. Unpaid Bill Administrative Fee

c. Unpaid Bill Premium

Georgia Policy Example Below:

Example #1 07/15/09 - $180.00 Loss on Policy # 1 Wheat

Policy 1 – Wheat Policy 1 – Oats Policy 2 – Wheat Policy 3 - Corn Unpaid Interest Unpaid Fees 30.00 30.00 30.00 30.00 Unpaid Premium 100.00 120.00 165.00 230.00 Bill Date 7/1/2009 7/1/2009 7/1/2009 10/1/2009

1. Apply $30 to fees on Policy #1-Wheat, and $100 to Premium on Policy #1-Wheat 2. Apply the remaining Loss Credit to Policy #1-Oats – $30 Fees, and $20 to Premium

Example #2 09/15/09 - $600.00 Loss on Policy # 1-Wheat

Policy 1 – Wheat Policy 2- Oats Policy 2 – Wheat Policy 3 – Corn Unpaid Interest 3.25 3.75 4.88 - Unpaid Fees 30.00 30.00 30.00 30.00 Unpaid Premium 100.00 120.00 165.00 230.00 Bill Date 7/1/2009 7/1/2009 7/1/2009 10/1/2009

1. Apply $3.25 to interest on Policy #1-Wheat, $30 to fees on Policy #1-Wheat, and $100 to Premium on Policy #1-Wheat 2. Apply the remaining Loss Credit to Policy #2-Oats – $3.75 Interest, and Policy #2 – Wheat - $4.88 Interest (Note: if multiple crops have the same bill date, apply to interest on all crops before proceeding) 3. Apply the remaining Loss Credit to Policy #2--Oats - $30 Fee, and Policy #2 – Wheat $30 Fee (Note: if multiple crops have the same bill date, apply to administrative fee on all crops before proceeding) 4. Apply the remaining Loss Credit to Policy #2 – Oats - $120 Premium and Policy #2 – Wheat - $165 Premium. 5. Apply the remaining Loss Credit to Policy #3 – Corn - $30 Fees, $83.12 Premium

Note: Each example is independent of the other.

25 Full Book Reconciliation______2nd Draft February 23, 2010 RMA-Appendix III 57

A. The recon reduction due will be calculated on the monthly/annual operation reports in October following the reinsurance year (i.e. October 2011 for Reinsurance Year 2011). Policy level Deleted: one year after the beginning of PASS-Calculated discrepancy reports will be prepared for premium and losses. State coverage Summary Book of Business (SBOB) discrepancy reports will also be prepared for premium and losses. The discrepancy reports will be used to determine the recon reduction due on the operation reports for the negative financial impact to FCIC.

B. The policy level PASS-calculation discrepancy report will compare the accepted premium to the PASS-calculated premium which includes accepted and flagged records. On a monthly operation report, the recon reduction amount will calculate the negative financial impact to FCIC for the overage of A&O subsidy reimbursement on non-CAT coverage policies and Loss Adjustment Expense on CAT coverage policies because of premium discrepancies. On an annual operation report, the recon reduction amount will calculate the negative financial impact to FCIC for the shortage of premium due minus the A&O subsidy reimbursement on non-CAT coverage policies because of premium discrepancies. (See Exhibit 4-1)

C. The policy level PASS-calculation discrepancy report will compare the accepted loss to the Pass- calculated loss which includes accepted and flagged records. On a monthly/annual operation report, the recon reduction amount will calculate the negative financial impact to FCIC for the overage of 21/22 loss records. (See Exhibit 4-2)

D. Also, beginning in October following the reinsurance year (i.e. October 2011 for Reinsurance Deleted: each month Year 2011) and every 6 months thereafter until data processing has ceased for the respective Deleted: one year after the beginning of reinsurance year, the AIP will submit a Summary Book of Business (SBOB) by state level containing premium, subsidy, and loss. PASS accepted data will be compared the SBOB information by state level to determine the negative financial impact to FCIC for premium and loss values. If the discrepancies are outside the tolerance level for differences RMA will request Comment [TAB5]: Where is this tolerance level detail information down to the policy level. stated?

E. The SBOB state level discrepancy report will compare the PASS accepted premium by state level to the AIP submitted SBOB. On a monthly operation report, the recon reduction amount will be calculated on the negative financial impact to FCIC for the overage of A&O subsidy average reimbursement on non-CAT coverage policies and Loss Adjustment Expense on CAT coverage policies because of premium discrepancies by state level. On an annual operation report, the recon reduction amount will calculate the negative financial impact to FCIC for the shortage of premium due minus the A&O subsidy average reimbursement on non-CAT coverage policies because of premium discrepancies by state level. (See Exhibit 4-3)

F. The SBOB state level discrepancy report will compare the PASS accepted losses by state level to the AIP submitted SBOB. On a monthly/annual operation report, the recon reduction amount will calculate the negative financial impact to FCIC for the overage of accepted losses by state level. (See Exhibit 4-4)

G. The Reconciliation Reduction Worksheet will summarize the recon reduction amount due on the operation report. (See Exhibit 4-5)

2nd Draft February 23, 2010 RMA-Appendix III 58

Example of Recon Reduction for Discrepancies:

PASS Premium Discrepancy by Policy on Monthly Operation Report Recon Reduction PASS Accepted PASS - Calculation Calculation Recon Reduction Comments Non-CAT Policy $ 50 Net Financial Impact: Assumed 25% A&O Reimbursement for non-CAT policies and 6% Loss Adjustment $1,000 $800 CAT Policy $12 Expense for CAT policies $800 $1,000 $0 No Impact

PASS Premium Discrepancy by Policy on Annual Operation Report Comment [TAB6]: This example appears to be reversed. How is FCIC negatively impacted if AIP Recon Reduction submitted premium is less than PASS calculated PASS Accepted PASS - Calculation Calculation Recon Reduction Comments premium? Why would the reductions be any different on the annual report vs a monthly report? $1,000 $800 $0 No Impact Non-CAT Policy $ 175 Net Financial Impact: Assumed 25% A&O Reimbursement for non-CAT policies and 6% Loss Adjustment $800 $1,000 CAT Policy $0 Expense for CAT policies

PASS Loss Discrepancy by Policy on Operation Report Recon Reduction PASS Accepted PASS - Calculation Calculation Recon Reduction Comments Loss Difference included in Recon $600 $500 $100 Reduction $500 $600 $0 No Impact

SBOB Premium Discrepancy by State Level on Monthly Operation Report PASS Accepted AIP Submitted Recon Reduction by State Level SBOB Calculation Recon Reduction Comments Non-CAT Policy $ 160 Net Financial Impact: Assumed Ave 20% A&O Reimbursement for non- CAT policies and 6% Loss $4,000 $3,200 CAT Policy $48 Adjustment Expense for CAT policies $3,200 $4,000 $0 No Impact

SBOB Premium Discrepancy by State Level on Annual Operation Report Comment [TAB7]: Same comment as above, the example appears to be reversed. How is FCIC PASS Accepted AIP Submitted Recon Reduction financially impacted when an AIP underreports their by State Level SBOB Calculation Recon Reduction Comments premiums totals for the state? $4,000 $3,200 $0 No Impact $3,200 $4,000 Non-CAT Policy $640 Net Financial Impact: Assumed Ave

2nd Draft February 23, 2010 RMA-Appendix III 59

20% A&O Reimbursement for non- CAT policies and 6% Loss CAT Policy $0 Adjustment Expense for CAT policies

SBOB Loss Discrepancy by State Level on Annual Operation Report PASS Accepted AIP Submitted Recon Reduction by State Level SBOB Calculation Recon Reduction Comments $2,400 $2,000 $400 Loss Difference $2,000 $2,400 $0 No Impact

2nd Draft February 23, 2010 RMA-Appendix III 60

FCIC OPERATIONS REPORT PAGE: 1 RO XX REINSURANCE YEAR - YYYY RCP001-C Reinsured Company Name MONTHLY C/O MGA

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY ======PREMIUM PAID LOSS-CR SUBSIDY LOSSES ADDT SUBSIDY GROUP RISK 0 .00 0 0 0 0 REVENUE HARV. OPT. 0 .00 0 0 0 0 OTHER 0 .00 0 0 0 0 TOTAL NON CAT 0 .00 0 0 0 0 ======CAT 0 0 0 ======(L/R = .0000 ) DUE COMPANY DUE FCIC a.NET EXPENSE REIMBURSEMENT .00 b.NET CONTINGENCY FUND .00 c.PREMIUM COLLECTED .00 .00 d.ESCROW AND DRAFTS .00 .00 .00 e.LOSS DEDUCTIONS (F,R,O) .00 .00 .00 .00 f.STATE SUBSIDY .00 g.COMPANY PREVIOUS PAYMENT .00 h.FCIC INTEREST PAID .00 i.ADJUSTMENTS DUE COMPANY .00 j.NET ADMINISTRATIVE FEE ADJUSTMENT .00 k.REDUCTIONS DUE TO RECON REPORT DIFFERENCES .00 l.FCIC INTEREST/PENALTY .00 m.ADJUSTMENTS DUE FCIC .00 n.FCIC PREVIOUS PAYMENT .00 o.ESCROW FUNDED .00 p.PAID PREVIOUS WORKSHEETS .00 .00 q.UNDERWRITING LOSS .00 .00 r.SUBTOTAL .00 .00 s.TOTAL FROM CURRENT WORKSHEET .00 .00 t.BALANCE DUE COMPANY/FCIC .00 ======ESCROW REIMBURSEMENT ======u.PREVIOUS ESCROW FUNDED .00 v.LESS DRAFTS ISSUED (ESCROW) .00 w.ESCROW BALANCE .00 ======CERTIFIED CORRECT

______NAME TITLE DATE NOTE: ANY FALSE CERTIFICATION MADE TO THE CORPORATION MAY SUBJECT THE MAKER TO CRIMINAL AND CIVIL PENALTIES AS PROVIDED IN 18 U.S.C. 287,1001; 31 U.S.C. 3729 AND 3730

2nd Draft February 23, 2010 RMA-Appendix III 1 - 1

FCIC INSTALLMENT REPORT PAGE: 1 RO XX REINSURANCE YEAR - YYYY INS001 Reinsured Company Name C/O MGA

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY ======PREMIUM PAID LOSS-CR SUBSIDY LOSSES ADDT SUBSIDY GROUP RISK 0 .00 0 0 0 0 REVENUE HARV. OPT. 0 .00 0 0 0 0 OTHER 0 .00 0 0 0 0 TOTAL NON CAT 0 .00 0 0 0 0 ======CAT 0 0 0 ======

DUE COMPANY ADMINISTRATIVE AND OPERATING SUBSIDY GROUP RISK GRP/GRIP (SRA REIMB RATE 12.0%) - 75% COVERAGE LEVEL 9,999,999 .00 (SRA REIMB RATE 12.0%) - 80% COVERAGE LEVEL 9,999,999 .00 (SRA REIMB RATE 12.0%) - 85% COVERAGE LEVEL 9,999,999 .00 PRF (SRA REIMB RATE 20.1%) - 75% COVERAGE LEVEL 9,999,999 .00 (SRA REIMB RATE 17.8%) - 80% COVERAGE LEVEL 9,999,999 .00 (SRA REIMB RATE 17.1%) - 85% COVERAGE LEVEL 9,999,999 .00

TOTAL GROUP RISK .00 REVENUE HARV. OPT. (SRA REIMB RATE 18.5%) - 75% COVERAGE LEVEL 9,999,999 .00 (SRA REIMB RATE 16.4%) - 80% COVERAGE LEVEL 9,999,999 .00 (SRA REIMB RATE 15.8%) - 85% COVERAGE LEVEL 9,999,999 .00

TOTAL REVENUE .00 OTHER (SRA REIMB RATE 21.9%) - 75% COVERAGE LEVEL 9,999,999 .00 (SRA REIMB RATE 19.4%) - 80% COVERAGE LEVEL 9,999,999 .00 (SRA REIMB RATE 18.7%) - 85% COVERAGE LEVEL 9,999,999 .00 TOTAL OTHER .00

TOTAL ADMINISTRATIVE AND OPERATING SUBSIDY .00

CAT LOSS ADJUSTMENT (6.0%) 9,999,999 .00

NET EXPENSE REIMBURSEMENT .00 ======

2nd Draft February 23, 2010 RMA-Appendix III 1 - 2

RO XX FCIC STATE REIMBURSEMENT REPORT PAGE: 1 Reinsured Company Name REINSURANCE YEAR - YYYY INS002 C/O MGA

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY ======RATE PLAN INS COV REIMBURSE TOTAL REIMBURSEMENT ST CHG GROUP PLAN LVL RATE PREMIUM AMOUNT ======

AL Y CAT 41 .5000 .06000 999,999 9,999.99 86 .5000 .06000 999,999 9,999.99 90 .5000 .06000 999,999 9,999.99 GRP 73 .9000 .12000 999,999 9,999.99 OTH 41 .5000 .23050 999,999 9,999.99 86 .5000 .23050 999,999 9,999.99 .7500 .23050 999,999 9,999.99 90 .5000 .23050 999,999 9,999.99 .7500 .23050 999,999 9,999.99 .8500 .19850 999,999 9,999.99 REV 44 .5000 .19650 999,999 9,999.99 .7000 .19650 999,999 9,999.99 .7500 .19650 999,999 9,999.99

*TOTAL STATE AL 9,999,999 99,999.99

WY N CAT 41 .5000 .06000 999,999 9,999.99 86 .5000 .06000 999,999 9,999.99 90 .5000 .06000 999,999 9,999.99 GRP 73 .9000 .12000 999,999 9,999.99 OTH 41 .5000 .21900 999,999 9,999.99 86 .5000 .21900 999,999 9,999.99 .7500 .19400 999,999 9,999.99 90 .5000 .21900 999,999 9,999.99 .7500 .19400 999,999 9,999.99 .8500 .18700 999,999 9,999.99 REV 44 .5000 .18500 999,999 9,999.99 .8000 .16400 999,999 9,999.99 .9000 .15800 999,999 9,999.99

*TOTAL STATE WY 9,999,999 99,999.99

TOTAL 99,999,999 999,999.99

2nd Draft February 23, 2010 RMA-Appendix III 1 - 3

FCIC OPERATIONS REPORT PAGE: 1 RO XX REINSURANCE YEAR - YYYY RCP002-C Reinsured Company Name ANNUAL C/O MGA

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY ======PREMIUM PAID LOSS-CR SUBSIDY LOSSES ADDT SUBSIDY GROUP RISK 0 .00 0 0 0 0 REVENUE HARV. OPT. 0 .00 0 0 0 0 OTHER 0 .00 0 0 0 0 TOTAL NON CAT 0 .00 0 0 0 0 ======CAT 0 0 0 ======(L/R = .0000 ) DUE COMPANY DUE FCIC a.NET EXPENSE REIMBURSEMENT ADJUSTMENT .00 b.NET CONTINGENCY FUND .00 c.PREMIUM COLLECTED .00 .00 d.LOSS-CR, ESCROW, AND DRAFTS .00 .00 .00 .00 e.LOSS DEDUCTIONS (F,R,O) .00 .00 .00 .00 f.STATE SUBSIDY .00 g.SUBSIDY .00 h.ADDITIONAL SUBSIDY .00 i.COMPANY PREVIOUS PAYMENT .00 j.FCIC INTEREST PAID .00 k.ADJUSTMENTS DUE COMPANY .00 l.NET ADMINISTRATIVE FEE ADJUSTMENT .00 m.REDUCTIONS DUE TO RECON REPORT DIFFERENCES .00 n.FCIC INTEREST/PENALTY .00 o.ADJUSTMENTS DUE FCIC .00 p.FCIC PREVIOUS PAYMENT .00 q.ESCROW FUNDED .00 r.PAID PREVIOUS WORKSHEETS .00 .00 s.UNDERWRITING GAIN/LOSS .00 .00 t.SUBTOTAL .00 .00 u.TOTAL FROM CURRENT WORKSHEET .00 .00 v.BALANCE DUE COMPANY/FCIC .00 .00 ======ESCROW REIMBURSEMENT ======w.PREVIOUS ESCROW FUNDED .00 x.LESS DRAFTS ISSUED (ESCROW) .00 y.ESCROW BALANCE .00 ======CERTIFIED CORRECT

______NAME TITLE DATE NOTE: ANY FALSE CERTIFICATION MADE TO THE CORPORATION MAY SUBJECT THE MAKER TO CRIMINAL AND CIVIL PENALTIES AS PROVIDED IN 18 U.S.C. 287,1001; 31 U.S.C. 3729 AND 3730

2nd Draft February 23, 2010 RMA-Appendix III 1 - 4

FCIC ADMINISTRATIVE FEE REPORT RO XX REINSURANCE YEAR YYYY FEE002 REINSURANCE COMPANY NAME (MONTHLY) C/O MGA

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY ======

CAT FEES DUE FCIC 9,900.00 ADDITIONAL COVERAGE FEES COLLECTED .00 LESS COMPANY CAT FEES REDUCTION 1,000.00

ADMINISTATIVE FEES DUE FCIC 8,900.00

2nd Draft February 23, 2010 RMA-Appendix III 1 - 5

FCIC ACCOUNTING DETAIL REPORT (EXCLUDING CAT) ADR001 RO XX REINSURANCE YEAR YYYY REINSURANCE COMPANY NAME MONTHLY C/0 MGA

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY ======CLEARED ADDT ST CO POL # YR NAME (NOTES) PREMIUM PAID LOSS-CR SUBSIDY LOSSES SUBSIDY ======

XX 999 999999 YYYY DOE, JOHN * 9,999 9,999 999 9,999 999 99 XX 999 999999 YYYY DOE, JOHN * 9,999 9,999 999 9,999 999 99 XX 999 999999 YYYY DOE, JOHN * 9,999 9,999 999 9,999 999 99 XX 999 999999 YYYY DOE, JOHN * 9,999 9,999 999 9,999 999 99 XX 999 999999 YYYY DOE, JOHN * 9,999 9,999 999 9,999 999 99 XX 999 999999 YYYY DOE, JOHN * 9,999 9,999 999 9,999 999 99 XX 999 999999 YYYY DOE, JANE * 9,999 9,999 999 9,999 999 99 XX 999 999999 YYYY DOE, JANE * 9,999 9,999 999 9,999 999 99 XX 999 999999 YYYY DOE, JANE * 9,999 9,999 999 9,999 999 99 XX 999 999999 YYYY DOE, JANE * 9,999 9,999 999 9,999 999 99 XX 999 999999 YYYY DOE, JANE * 9,999 9,999 999 9,999 999 99 XX 999 999999 YYYY DOE, JANE * 9,999 9,999 999 9,999 999 99

TOTAL 9,999 9,999 999 9,999 9,999 99

*** NOTES *** (*) – Assigned Risk FUND (V) - OVERPAID Deleted: RESIDUAL (P) - PAYMENT CR MEMO (E) - ESCROW

2nd Draft February 23, 2010 RMA-Appendix III 1 - 6

FCIC ACCOUNTING DETAIL REPORT (EXCLUDING CAT ADR002 RO XX REINSURANCE YEAR YYYY REINSURANCE COMPANY NAME STATE TOTALS C/O MGA

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY ======CLEARED ADDT ST PREMIUM PAIDS LOSS-CR SUBSIDY LOSSES SUBSIDY ======

CO 99,999 0.00 0 99,999 0 0 KS 99,999 0.00 0 99,999 0 0 NE 99,999 0.00 0 99,999 0 0 TX 99,999 0.00 0 99,999 0 0

TOTAL 999,999 0.00 0 999,999 0 0

2nd Draft February 23, 2010 RMA-Appendix III 1 - 7

FCIC DETAIL REPORT (EXCLUDING CAT) ADR003 RO XX REINSURANCE YEAR - YYYY REINSURANCE COMPANY NAME GRAND TOTALS C/O MGA

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY ======

CLEARED ADDT CROP YR PREMIUM PAID S LOSS-CR SUBSIDY LOSSES SUBSIDY ======

YYYY (-1) 9,999,999 99,999.99 0 9,999,999 0 0 YYYY 99,999,999 999,999.99 0 99,999,999 YYYY (+1) 99,999 9.99 0 99,999

TOTALS 99,999,999 999,999.99 0 99,999,999 0 0

OVERPAIDS 999.99 0

GRAND TOTALS LESS OVERPAIDS 99,999,999 999,999.99 0 99,999,999 0 0

PMEMO 999,999 MMEMO 999,999 PLCR 999,999

2nd Draft February 23, 2010 RMA-Appendix III 1 - 8

FCIC DETAIL OVERPAIDS REPORT (EXCLUDING CAT) ADR004 RO XX REINSURANCE YEAR - YYYY REINSURANCE COMPANY NAME OVERPAID POLICIES C/O MGA

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE : MM/DD/YYYY ======

CLEARED ADDT OVER OVER ST CO POLICY YR PREMIUM PAIDS LOSS CR SUBSIDY LOSSES SUBSIDY PAID LOSS-CR ======

AL 999 9999999 YYYY 9,999 9,999.99 999.99 999.99 999.99 9.99 99.99 9.99

*TOTAL STATE AL 9,999 9,999.99 999.99 999.99 999.99 9.99 99.99 9.99

AR 999 9999999 YYYY 9,999 9,999.99 999.99 999.99 999.99 9.99 99.99 9.99

*TOTAL STATE AR 9,999 9,999.99 999.99 999.99 999.99 9.99 99.99 9.99

TOTAL 9,999 9,999.00 999.99 999.99 999.99 9.99 99.99 9.99

2nd Draft February 23, 2010 RMA-Appendix III 1 - 9

P/CR MEMO REJECT LISTING PCR001 RO XX REINSURANCE YEAR - YYYY REINSURANCE COMPANY NAME C/O MGA

CURRENT DATE: MM/DD/YYYY CUTOFF DATE: MM/DD/YYYY ======

MEMO MEMO MEMO MEMO PMEMO SOURCE SOURCE SOURCE SOURCE RO LOC ST CNO POLICY NO CROP YR AMOUNT RO ST CNO POLICY NO ======

XX NE 999 999999 YYYY 999.00 XX 31 999 9999999 PE 999 999999 YYYY 9,999.00 XX 42 999 9999999 PE 999 999999 YYYY 9,999.00 XX 42 999 9999999 999999 YYYY 99.00 XX 19 999 9999999 999999 YYYY 9,999.00 XX 42 999 9999999

TOTAL 99,999.00

2nd Draft February 23, 2010 RMA-Appendix III 1 - 10

EXAMPLE 1:

INTEREST CALCULATIONS ON LATE ACCOUNTING REPORT PAYMENTS

REPORT REPORT AMOUNT DAYS INTEREST NOTE DATE DUE RECEIVED LATE RATE AMOUNT REF.

05/08/YYYY 05/29/YYYY $100,000 4 15% $164.38 1

11/06/YYYY 11/30/YYYY $1,000,000 7 15% $2,876.71 2

1. Payment of the $100,000 balance due FCIC on the 05/08/YYYY report, due on 05/29/YYYY, the last banking day of the month, is received on 06/02/YYYY.

2. Payment of the $1,000,000 balance due FCIC on the 11/06/YYYY report, due on 11/30/YYYY, the last banking day in the month, is received on 12/07/YYYY.

2nd Draft February 23, 2010 RMA-Appendix III 1 - 11

EXAMPLE 2:

INTEREST CALCULATIONS ON OVERPAID INDEMNITIES/UNDERSTATED PREMIUM CASES IDENTIFIED THROUGH REVIEW

FINAL FINDINGS OVERPAYMENT DATE OF APPEAL ACCOUNTING INTEREST INTEREST NOTE LETTER AMOUNT APPEAL LETTER DATE REPORT DATE DAYS RATE DUE REF

1/20/YYYY $10,000 N/A N/A 02/09/YYYY 26 15% 0.00 1 1/20/YYYY $15,000 N/A N/A 04/09/YYYY 100 15% $616.44 2 1/20/YYYY $20,000 2/15/YYYY 11/28/YYYY 12/11/YYYY 345 15% $2,835.62 3

1. The Company is notified of an overpayment in a Final Findings by the Regional Compliance Offices letter dated January 20, YYYY. The February 9, YYYY report containing the correction was filed timely. Since the report was corrected within 30 days, interest does not attach.

2. The Company is notified of an overpayment amount in a Final Findings by the Regional Compliance Offices letter dated January 20, YYYY. The amount is to be corrected on the February 9, YYYY report. No appeal is filed. No corrections are made until the April 9, YYYY report. Interest is calculated starting with the day after the Final Findings by the Regional Compliance Offices letter which is January 21, YYYY through the due date of the certified report containing the corrections is submitted, which is April 30, YYYY.

3. Interest begins accruing based on the date of the Final Findings by the Regional Compliance Offices letter. Appeals have no affect on delaying the interest computation date. In this example, the company is notified of an overpayment in a Final Findings by the Regional Compliance Offices letter dated January 20, YYYY. The company files an appeal on February 15, YYYY. The appeal is heard and FCIC receives a favorable decision. Had the company received a favorable decision, no interest is due. The Company is notified by an Appeal Determination letter on November 28, YYYY of the amount due FCIC. Interest is calculated starting with the day after the Final Findings by the Regional Compliance Offices letter, which is January 21, YYYY through the due date of the certified report containing the correction is submitted, which is December 31, YYYY.

2nd Draft February 23, 2010 RMA-Appendix III 1 - 12

CAT COVERAGE FEES (EXCLUDING BUY-UPS) CFE001 RO XX REINSURED COMPANY DETAIL REPORT REINSURANCE COMPANY NAME REINSURANCE YEAR YYYY C/O MGA MONTHLY

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY ======POLICY CROP LOC CROP PRAC A ADM FEES FEES FEES ID NUMBER ST CO NUMBER YEAR CNTY CODE TYPE CODE R FEE PREMIUM LOSSES AMOUNT COLLECTED WAIVED ======

999999999 CA 999 999999 YYYY 999 0037 999 999 C 999 300 999999999 IL 999 999999 YYYY 999 0011 997 999 C 999 300 999999999 MO 999 999999 YYYY 999 0011 997 998 C 999 300 999999999 MN 999 999999 YYYY 999 0033 997 998 C 9,999 300 999999999 KS 999 999999 YYYY 999 0011 997 998 C 999 300 999999999 MN 999 999999 YYYY 999 0033 997 998 C 999 300 999999999 IL 999 999999 YYYY 999 0011 997 998 C 99 300 999999999 IL 999 999999 YYYY 999 0011 997 998 C 9,999 300 999999999 IL 999 999999 YYYY 999 0011 997 998 C 99 300 999999999 OH 999 999999 YYYY 999 0011 997 998 A 99 300 999999999 IL 999 999999 YYYY 999 0011 997 998 C 999 300 999999999 IL 999 999999 YYYY 999 0011 997 998 A 999 300 999999999 IN 999 999999 YYYY 999 0011 997 998 C 99 300 999999999 IL 999 999999 YYYY 999 0011 997 998 A 999 300 999999999 IL 999 999999 YYYY 999 0011 997 998 C 999 300 999999999 IL 999 999999 YYYY 999 0011 997 998 C 999 300

TOTAL 9,999 4,600

*** NOTES *** YYYY Catastrophic Coverage Fees

The CAT Fee amount for all crops will be $300.

2nd Draft February 23, 2010 RMA-Appendix III 2 - 1

CAT COVERAGE FEES CFE002 RO XX REINSURED COMPANY DETAIL REPORT REINSURANCE COMPANY NAME REINSURANCE YEAR YYYY C/O MGA

DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY

ST PREMIUM LOSSES FEE AMOUNT FEES COLLECTED FEES WAIVED AL 999,999 99,999 999 999 AR 999,999 99,999 999 999 AZ 999,999 99,999 999 999 CA 999,999 99,999 999 999 CO 999,999 99,999 999 999 CT 999,999 99,999 999 999 MO 999,999 99,999 999 999 MS 999,999 99,999 999 999 MT 999,999 99,999 999 999 NC 999,999 99,999 999 999 ND 999,999 99,999 999 999 NE 999,999 99,999 999 999 NJ 999,999 99,999 999 999 NM 999,999 99,999 999 999 NY 999,999 99,999 999 999 OH 999,999 99,999 999 999 OK 999,999 99,999 999 999 OR 999,999 99,999 999 999 PA 999,999 99,999 999 999 SC 999,999 99,999 999 999

YYYY (-1) 999,999 0 99,999 999 999 YYYY 99,999,999 0 99,999 99,999 9,999 YYYY (+1) 9,999,999 0 99,999 9,999 999

TOTAL 999,999,999 0 999,999 99,999 99,999

2nd Draft February 23, 2010 RMA-Appendix III 2 - 2

CFE003 CAT COVERAGE FEES RO XX RECEIVABLE REPORT REINSURANCE COMPANY NAME REINSURANCE YEAR – YYYY C/O MGA

CURRENT DATE/TIME: MM/DD/YYYY HH:MM:SS CUTOFF DATE: MM/DD/YYYY ======TAX ID POLICY CROP CROP WRT COLL FEE ADJ RET CHK INT/PEN COLLECT BALANCE CO CAT FEE ID TYP PIC ST CNTY NBR YEAR CODE OFF ID AMT AMT AMT AMT AMT DUE REDUCT AMT ======999999999 9 999 99 999 9999999 YYYY 9999 300.00 .00 .00 .00 .00 300.00 300.00

TOTAL 300.00 .00 .00 .00 .00 300.00 300.00

2nd Draft February 23, 2010 RMA-Appendix III 2 - 3

ADDITIONAL COVERAGE ADMINISTRATIVE FEE SUMMARY REPORT PAGE 1 RO XX REINSURANCE YEAR - YYYY ACA001 REINSURANCE COMPANY NAME MONTHLY C/O MGA

CURRENT DATE/TIME: MM/DD/YYYY HH:MM:SS CUTOFF DATE: MM/DD/YYYY ======YYYY YYYY YYYY YYYY YYYY YYYY YYYY YYYY YYYY YYYY YYYY +1 YYYY +1 PRE STATE JAN APR MAY JUN JUL AUG SEP OCT NOV DEC JAN MAR PAID TOTAL ======AR 0 0 0 0 0 0 0 0 0 0 0 0 0 0 GA 0 0 0 0 0 0 0 0 0 0 0 0 0 0 IA 0 0 0 0 0 0 0 0 0 0 0 0 0 0 ID 0 0 0 0 0 0 0 0 0 0 0 0 0 0 IL 0 0 0 0 0 0 0 0 0 0 0 0 0 0 IN 0 0 0 0 0 0 0 0 0 0 0 0 0 0 KS 0 0 0 0 0 0 0 0 0 0 0 0 0 0 MI 0 0 0 0 0 0 0 0 0 0 0 0 0 0 MN 0 0 0 0 0 0 0 0 0 0 0 0 0 0 MO 0 0 0 0 0 0 0 0 0 0 0 0 0 0 ND 0 0 0 0 0 0 0 0 0 0 0 0 0 0 NM 0 0 0 0 0 0 0 0 0 0 0 0 0 0 OH 0 0 0 0 0 0 0 0 0 0 0 0 0 0 SD 0 0 0 0 0 0 0 0 0 0 0 0 0 0 TX 0 0 0 0 0 0 0 0 0 0 0 0 0 0

TOTAL 0 0 0 0 0 0 0 0 0 0 0 0 0 0 ------

TOTAL 0 0 0 0 0 0 0 0 0 0 0 0 0 0 WAIVED 0 0 0 0 0 0 0 0 0 0 0 0 0 0 GRAND 0 0 0 0 0 0 0 0 0 0 0 0 0 0

2nd Draft February 23, 2010 RMA-Appendix III 2 - 4

RO XX FCIC REINSURANCE RUN PAGE 1 REINSURANCE COMPANY NAME REINSURANCE YEAR YYYY REIPRT01 C/O MGA

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY

STATE POOL % LIABILITY PREMIUMS LOSSES LOSS AR RATIO COMMERCIAL 9.9 999,999 999,999 99,999 9.9 SUBTOTAL 1 999,999 999,999 99,999 9.9

COMMERCIAL Min. 25 9.9 999,999 999,999 99,999 9.9 REVISED SUBTOTAL 1 999,999 999,999 99,999 9.9

COMMERCIAL 9.9 999,999 999,999 99,999 9.9 RETAINED SUBTOTAL 2 999,999 999,999 99,999 9.9

COMMERCIAL Min. 35 9.9 999,999 999,999 99,999 9.9 RETAINED SUBTOTAL 3 999,999 999,999 99,999 9.9

COMMERCIAL 9.9 999,999 99,999 9.9 SUBTOTAL 4 999,999 99,999 9.9

COMMERCIAL GAIN/LOSS 999,999 (9,999) STATE GAIN/LOSS 999,999 (9,999)

(CONTINUED)

2nd Draft February 23, 2010 RMA-Appendix III 3 - 1

RO XX FCIC REINSURANCE RUN PAGE 2 REINSURANCE COMPANY NAME REINSURANCE YEAR YYYY REIPRT01 C/O MGA

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY

RO RECAP POOL % LIABILITY PREMIUMS LOSSES LOSS RATIO COMMERCIAL 9.9 999,999 999,999 99,999 9.9 RESIDUAL 9.9 999,999 999,999 99,999 9.9 SUBTOTAL 1 999,999 999,999 99,999 9.9

COMMERCIAL 9.9 999,999 999,999 99,999 9.9 RESIDUAL 9.9 999,999 999,999 99,999 9.9 REVISED SUBTOTAL 1 999,999 999,999 99,999 9.9

COMMERCIAL 9.9 999,999 999,999 99,999 9.9 RESIDUAL 9.9 999,999 999,999 99,999 9.9 RETAINED SUBTOTAL 2 999,999 999,999 99,999 9.9

COMMERCIAL 9.9 999,999 999,999 99,999 9.9 RESIDUAL 9.9 999,999 999,999 99,999 9.9 RETAINED SUBTOTAL 3 999,999 999,999 99,999 9.9

COMMERCIAL 9.9 999,999 99,999 9.9 RESIDUAL 9.9 999,999 99,999 9.9 SUBTOTAL 4 999,999 99,999 9.9

2nd Draft February 23, 2010 RMA-Appendix III 3 - 2

RO XX FCIC REINSURANCE RUN PAGE 23 Reinsurance Company Name REINSURANCE YEAR YYYY REIPRT01 C/O MGA

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY

RO RECAP POOL % LIABILITY PREMIUMS LOSSES LOSS RATIO COMMERCIAL GAIN/LOSS 9,999,999 (999,999) RESIDUAL GAIN/LOSS 9,999,999 (999,999) GROSS GAIN/LOSS 99,999,999 (9,999,999) LESS QUOTA SHARE 9,999,999 (99,999) GAIN/LOSS AFTER QUOTA SHARE 99,999,999 (9,999,999) PAYOUT QUOTA SHARE 9,999,999 (9,999,999) GAIN/LOSS 999,999,999 (99,999,999)

2nd Draft February 23, 2010 RMA-Appendix III 3 - 3

RO XX RECONCILIATION REDUCTION WORKSHEET Page: 1 Reinsurance Company Name REINSURANCE YEAR YYYY RECXXX C/O MGA ANNUAL SETTLEMENT REPORT

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY

Premium

PASS Premium Discrepancy by Policy Level 9,999,999,999 SBOB Premium Discrepancy by State 9,999,999,999

Total Non-CAT 9,999,999,999

PASS Premium Discrepancy by Policy Level 9,999,999,999

SBOB Premium Discrepancy by State 9,999,999,999

Total CAT 9,999,999,999

TOTAL PREMIUM RECON REDUCTION 9,999,999,999

Loss PASS Loss Discrepancy by Policy Level 9,999,999,999

SBOB Loss Discrepancy 9,999,999,999

Total Loss Reduction 9,999,999,999

Total

Total Recon Reduction 9,999,999,999

2nd Draft February 23, 2010 RMA-Appendix III 4 - 1

RO XX RECONCILIATION REDUCTION WORKSHEET Page: 1 Reinsurance Company Name REINSURANCE YEAR YYYY RECXXX C/O MGA PASS PREMIUM DISCREPANCY BY POLICY

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY

PASS CROP CROP COVERAGE PASS ACCEPTED CALCULATED AIP STATE CO POLICY YEAR CODE FLAG LOSS LOSS DIFFERENCE XX XX 999 9999999 YYYY 9999 A 9,999,999,999 9,999,999,999 9,999,999,999 XX XX 999 9999999 YYYY 9999 A 9,999,999,999 9,999,999,999 9,999,999,999

XX XX 999 9999999 YYYY 9999 C 9,999,999,999 9,999,999,999 9,999,999,999 XX XX 999 9999999 YYYY 9999 C 9,999,999,999 9,999,999,999 9,999,999,999

TOTALS PREMIUM DISCREPANCY BY POLICY LEVEL 9,999,999,999

2nd Draft February 23, 2010 RMA-Appendix III 4 - 2

RO XX RECONCILIATION REDUCTION WORKSHEET Page: 1 Reinsurance Company Name REINSURANCE YEAR YYYY RECXXX C/O MGA SBOB PREMIUM DISCREPANCY

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY

AIP 70 AIP 70 Average RECORD RECORD COVERAGE A&O SUBSIDY PASS Accepted SUBMITTED PASS Accepted SUBMITTED - SUBSIDY) RO STATE FLAG REIMBURSEMENT PREMIUM PREMIUM SUBSIDY SUBSIDY DIFFERENCE

XX XX A 99.9% 999,999,999 99,999 999,999,999 99,999 999

SBOB PREMIUM DISCREPANCY FOR NON-CAT

XX XX C 99.9% 999,999,999 99,999 999,999,999 99,999 999

SBOB PEMIUM DISCREPANCY FOR CAT

2nd Draft February 23, 2010 RMA-Appendix III 4 - 3

RO XX RECONCILIATION REDUCTION WORKSHEET Page: 1 Reinsurance Company Name REINSURANCE YEAR YYYY RECXXX C/O MGA PASS LOSS DISCREPANCY BY POLICY

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY

PASS PASS CROP CROP COVERAGE Accepted Calculated RO STATE CO POLICY YEAR CODE FLAG LOSS LOSS DIFFERENCE

XX XX 999 9999999 YYYY 9999 A 99,999 99,999 999 XX XX 999 9999999 YYYY 9999 C 99,999 99,999 999

TOTAL PASS LOSS DISCREPANCY BY POLICY LEVEL

2nd Draft February 23, 2010 RMA-Appendix III 4 - 4

RO XX RECONCILIATION REDUCTION WORKSHEET Page: 1 Reinsurance Company Name REINSURANCE YEAR YYYY RECXXX C/O MGA SBOB LOSS DISCREPANCY

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY

AIP 70 PASS RECORD Accepted SUBMITTED LOSS RECON RO STATE LOSS LOSS DIFFERENCE REDUCTION XX XX 999,999,999 99,999 999 999

SBOB LOSS DISCREPANCY 999

2nd Draft February 23, 2010 RMA-Appendix III 4 - 5

FCIC ADMINISTRATIVE REDUCTION REPORT PAGE: 1 RO XX FOR LATE REPORTED REDUCTION (LRR) Reinsured Company Name REINSURANCE YEAR - YYYY LRR002 C/O MGA

CURRENT DATE: MM/DD/YYYY HH:MM:SS CUTOFF DATE: MM/DD/YYYY ======NET BOOK TOTAL RO ST PREMIUM REDUCTION ======XX XX 999,999 999,999.99 XX 999,999 999,999.99 XX 999,999 999,999.99 XX 999,999 999,999.99

------GRAND TOTALS 9,999,999 999,999.99 ------

TOTAL 1.0% 9,999.99 TOTAL 3.0% 9,999.99 TOTAL 6.0% 99,999.99 ------GRAND TOTAL 99,999.99

2nd Draft February 23, 2010 RMA-Appendix III 5 - 1

Deleted: FCIC ADMINISTRATIVE REDUCTION REPORT PAGE: 1 ¶ RO XX FOR LATE FILED ACREAGE REDUCTION (LFA) ¶ Reinsured Company Name REINSURANCE YEAR - YYYY LFA002¶ C/O MGA ¶ ¶ CURRENT DATE: MM/DD/YYYY HH:MM:SS CUTOFF DATE: MM/DD/YYYY¶ ======¶ NET BOOK TOTAL¶ RO ST PREMIUM REDUCTION¶

======¶ XX XX 999,999 999,999.99¶ XX 999,999 999,999.99¶ XX 999,999 999,999.99¶ XX 999,999 999,999.99¶ ¶ ¶ ------¶ GRAND TOTALS 9,999,999 999,999.99¶ ------¶ ¶ ¶ TOTAL 1.5% (Weeks 7 – 9) 9,999.99¶ TOTAL 3.0% (Weeks 10 – 11) 9,999.99¶ TOTAL 4.5% (Weeks 12 or more) 99,999.99¶

------¶ GRAND TOTAL 99,999.99¶

2nd Draft February 23, 2010 RMA-Appendix III 5 - 2

FCIC ACCOUNTING REPORT PAGE: 1 RO XX PREMIUM DUE WORKSHEET PDW001-C Reinsured Company Name REINSURANCE YEAR - YYYY C/O MGA

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY ======(A) (B) (C) (D) (E) (F) (G) INSURED PREM PAID PREM PREV NBR DAYS INTEREST TOTAL OF PREM DUE BY CO. UNPAID MONTH INTEREST DUE WORKSHEET MONTH (A-B) UNPAID (%)*(D)*(E) (-B-F) ======

JANUARY YYYY 99,999 _ ___ 999 99 99 99.99 999.99

MARCH YYYY 9,999 ______99 99 99 99.99 999.99

MAY YYYY ______

JULY YYYY ______

OCTOBER YYYY ______

JANUARY YYYY (+1) ______

TOTAL 999,999 9,999.99

2nd Draft February 23, 2010 RMA-Appendix III 6- 1

EXAMPLE 3:

PREMIUM DUE WITHOUT (W/O) PAYMENTS

PREMIUM AMOUNT OF PAYMENT INCREASES IN DAYS DUE REPORT TOTAL PREMIUM PREMIUM FROM (365 DAY YR.) INTEREST INTEREST NOTE DATE DATE DUE W/O PMT. PREVIOUS PEAK (EXACT DAYS) RATE AMOUNT REF.

08/15/YYYY 09/10/YYYY $1,000,000 $0 0 0 $0.00 1 08/15/YYYY 10/31/YYYY $1,200,000 $200,000 61 15% $5,013.70 2 08/15/YYYY 11/09/YYYY $1,300,000 $100,000 91 15% $3,739.73 3 08/15/YYYY 01/08/YYYY(+1) $1,100,000 $0 0 15% $0.00 4 08/15/YYYY 02/12/YYYY(+1) $1,400,000 $100,000 179 15% $7,356.16 5

1. Total premium with an August billing date is due to FCIC on September 30.

2. Total premium with an August billing date due to FCIC September 30 has increased by $200,000. The premium should have been reported on the September report. The company is charged for two full month's interest on the October report.

3. Total premium with an August billing date due to FCIC September 30 has increased by $100,000 during November. The premium should have been reported on the September report. The company is charged three full month's interest on the November report.

4. The total premium reported did not increase during the month.

5. Total premium with an August billing date due to FCIC September 30 has further increased during the month by another $100,000. The premium should have been reported on the September report. The company is charged six month's interest.

2nd Draft February 23, 2010 RMA-Appendix III 6- 2

FCIC SUMMARY REPORT (MONTHLY) PREMIUM DUE WITHOUT PAYMENTS WORKSHEET PDW002 REINSURANCE YEAR - YYYY

RO XX Reinsured Company Name C/O MGA

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY ======(A) (B) (C) (D) (E) (F) (G) CURRENT PREVIOUS RPT DATE INC OF PREM NBR DAYS INTEREST TOTAL OF MONTH REPORT PEAK OF PEAK DUE WO PAYM INTEREST DUE INTEREST ======

JANUARY YYYY 999 999 MM/DD/YYY 99 99 99.99 99.99

MARCH YYYY 999 999 MM/DD/YYY 99 99 99.99 99.99

MAY YYYY

JULY YYYY

OCTOBER YYYY __

JANUARY YYYY(+1)

TOTAL 999.99

2nd Draft February 23, 2010 RMA-Appendix III 6- 3

EXAMPLE:4

PREMIUM DUE WORKSHEET – AUGUST PREMIUM DEFERRED (EXAMPLE SHOWING FLOW THROUGH 4 OPERATIONS REPORTS)

PREMIUM (A) (B) (C) (D) (E) (F) (G) PAYMENT INS'DS PREM PREMIUM PREVIOUS DAYS INTEREST TOTAL OF REPORT DUE PREMIUMPAID UNPAID MONTH (365 DAY DUE WORKSHEET NOTE DATE DATE DUE BY CO. (A-B) UNPAID YEAR) (%*D*E) (-B-F) REF

09/DD/YYYY AUGUST/YYYY $3,000,000 $0 $3,000,000 $0 0 $000 $0.00 1

10/DD/YYYY AUGUST/YYYY $2,200,000 $0 $2,200,000 $3,000,000 61 $75,205.48 $75,205.48 2

11/DD/YYYY AUGUST/YYYY $1,500,000 $0 $1,500,000 $2,200,000 30 $27,123.29 $27,123.29 3

12/DD/YYYY AUGUST/YYYY $750,000 $0 $750,000 $1,500,000 31 $19,109.59 $19,109.59 4

1. Premium with an August billing date is deferred. No interest is due on this report.

2. Interest is charged on the $3,000,000 of premium deferred the previous month (Column D at an annual rate of 15% for the period 09/01/YYYY through 10/31/YYYY.

3. Interest is charged on the $2,200,000 of premium deferred the previous month (Column D) at an annual rate of 15% for the period 11/01/YYYY through 11/30/YYYY.

4. Interest is charged on the $1,500,000 of premium deferred the previous month (Column D) at an annual rate of 15% for the period 12/01/YYYY through 12/31/YYYY.

Note: Once annual settlement is reached premium can no longer be deferred, all premium is due FCIC even if it remains uncollected.

2nd Draft February 23, 2010 RMA-Appendix III 6- 4

EXAMPLE:5

PREMIUM DUE WORKSHEET - AUGUST PREMIUM PAID BY COMPANY

PREMIUM (A) (B) (C) (D) (E) (F) (G) PAYMENT INS'DS PREM PREMIUM PREVIOUS DAYS INTEREST TOTAL OF REPORT DUE PREMIUM PAID UNPAID MONTH (365 DAY DUE WORKSHEET NOTE DATE DATE DUE BY CO. (A-B) UNPAID YEAR) (%*D*E) (-B-F) REF

09/DD/YYYY AUGUST/YYYY 3,000,000 3,000,000 0 0 0 0 -3,000,000 1

10/DD/YYYY AUGUST/YYYY -2,000,000 -2,000,000 0 0 0 0 2,000,000 2

11/DD/YYYY AUGUST/YYYY -500,000 -500,000 0 0 0 0 500,000 3

10/DD/YYYY(+1) AUGUST/YYYY 4

1. PREMIUM WITH AUGUST BILLING IS PAID BY COMPANY ON THE 09/DD/YYYY OPERATIONS REPORT.

2. COMPANY HAS MADE COLLECTIONS OF AUGUST PREMIUM WHICH ARE REFLECTED IN THE PAIDS ON THE OPERATIONS REPORT. THIS RESULTS IN A NEGATIVE PREMIUM DUE (COLUMN A).

3. COMPANY HAS MADE ADDITIONAL COLLECTIONS OF AUGUST PREMIUM.

4. FIRST ANNUAL OPERATIONS REPORT. All PREMIUM DUE EVEN IF NOT COLLECTED BY THE COMPANY. IF NO DEFERRALS, THERE WILL BE NO PREMIUM DUE WORKSHEET NECESSARY.

2nd Draft February 23, 2010 RMA-Appendix III 6- 5

INSTRUCTION GUIDE FOR FUNDS TRANSFER DEPOSIT MESSAGES TO TREASURY

All Government agencies must provide specific information to their depositors so that a funds transfer deposit message can be transmitted to the Department of the Treasury (Treasury). Likewise, the depositors must communicate this information to the bank sending the funds transfer. The funds transfer deposit message format is included within this appendix. A narrative description of each field on the funds transfer deposit message follows:

Field Content

1 RECEIVER-DFI# - The Treasury Department's ABA number for deposit-messages is 021030004. This number should be entered by the sending bank for all deposit messages sent to the Treasury.

2 TYPE-SUBTYPE-CD - The type and subtype code will be provided by the sending bank.

3 SENDER-DFI# - This number will be provided by the sending bank.

4 SENDER-REF# - The sixteen character reference number is inserted by the sending bank at its option.

5 AMOUNT - The transfer amount must be punctuated with commas and decimal point; use of the "$" is optional. This item will be provided by the depositor.

6 SENDER-DFI-NAME - This information is automatically inserted by the Federal Reserve Bank.

7 RECEIVER-DFI-NAME - The Treasury Department's name for deposit messages is "TREAS NYC." This name should be entered by the sending bank.

8 PRODUCT CODE - A product code of "CTR" for customer transfer should be the first data in the RECEIVER-TEXT field. Other values may be entered, if appropriate, using the ABA's options. A slash must be entered after the product code.

9 AGENCY LOCATION CODE - THIS ITEM IS OF CRITICAL IMPORTANCE. IT MUST APPEAR ON THE FUNDS TRANSFER DEPOSIT MESSAGE IN THE PRECISE MANNER AS STATED TO ALLOW FOR THE AUTOMATED PROCESSING AND CLASSIFICATION OF THE FUNDS TRANSFER MESSAGE TO THE AGENCY LOCATION CODE OF THE APPROPRIATE AGENCY. The agency location code (ALC) refers to three-, four-, or eight-digit numeric symbols used to identify Government departments and agencies (e.g., accounting stations, disbursing and collecting offices). The agency's unique code must be specified in the funds transfer message in order for the funds to be correctly classified to the respective agency. The ALC identification sequence includes the beneficiary code field tag, BNF-, and identifier code,/AC-, followed by the appropriate ALC number. These three components must be in the following format:

BNF-/AC-nnn 3-digit ALC -OR- BNF-/AC-nnnn 4-digit ALC -OR- BNF-/AC-nnnnnnnn 8-digit ALC

The ALC identification sequence can, if necessary, begin on one line and end on the next line; however, the field tag "BNF-" must be one line and cannot contain any spaces.

2nd Draft February 23, 2010 RMA-Appendix III 7 - 1

10 THIRD PARTY INFORMATION - The appropriate information to identify the reason for the funds transfer should be provided by the agency to the depositor. The originator to Beneficiary Information field tag "OBI-" is used to signify the beginning of the free-form third party text. The field tag "OBI-" must be on the same line and cannot contain any spaces. The field tag is placed following the ALC identification sequence and preceded by a space. An example of this data line using the 8-digit ALC would be as follows:

BNF-/AC-nnnnnnnn OBI

It is important to note that the length of the third party text depends on how close you can place the ALC identification sequence (Field 9) to the PRODUCT CODE (Field 8). Under the Federal Reserve System's Structured Third Party Format, financial institutions have the ability to place additional information fields for their own use between field 8 and field 9. Agencies should instruct their depositors and financial institutions to limit the use of these additional fields, and attempt to adhere to the optimum format for fields 7, 8, 9, and 10. This format using an 8-digit ALC is as follows:

TREAS NYC/CTR/BNF-/AC-nnnnnnnn OBI-

The optimum format, shown above will allow 219 character positions of information following the "OBI-" indicator. The information that is constant for all agencies is shown in the Funds Transfer Deposit Message Format within this appendix. This includes the RECEIVER-DFI# (FIELD 1), the RECEIVER-DFI-NAME (FIELD 7) and the PRODUCT CODE (FIELD 8). In addition to these constant fields, the agency must provide fields 9 and 10 to their depositors and the depositor must provide field 5 to the sending financial institution.

The depositor should inform the financial institution that sends the funds transfers to Treasury to use due care and ensure that all information is provided in the prescribed format. Failure to provide the information in the prescribed format may cause a delay in the notification of the funds transfer to the agency.

A sample of a funds transfer deposit message to Treasury is included within this appendix.

021030004 (2)

(3) (4) (5)

(6)

/ (7) (8)

TREAS NYC/CTR/ (9) BNF-/AC-nnnnnnnn OBI- (10)

2nd Draft February 23, 2010 RMA-Appendix III 7 - 2

ESCROW REGISTER REINSURED COMPANY NAME ESCROW ACCOUNT #99999 01/01/XXXX HH:MM

Total Requested Amount 21,000.00 Previous Requested Amount .00 Receivable Amount .00 Payment Amount 21,000.00

Policy Issuing Policy Claim Requested Previous Payable State Company Number Name Number Amount Amount Amount 02 500 123456 Producer 1 1111 1,000.00 0.00 1,000.00 02 500 234567 Producer 2 2222 2,000.00 0.00 2,000.00 02 500 345678 Producer 3 3333 3,000.00 0.00 3,000.00 02 500 456789 Producer 4 4444 4,000.00 0.00 4,000.00 02 500 678901 Producer 5 5555 5,000.00 0.00 5,000.00

Previous Y-T-D YYYY Total 74,000.00 Reinsurance Year YYYY Total 15,000.00 Cumulative Y-T-D Total 89,000.00

02 500 456789 Producer 6 6666 6,000.00 0.00 6,000.00

Previous Y-T-D YYYY(+1)Total10,000.00 Reinsurance Year YYYY(+1)Total 6,000.00 Cumulative Y-T-D Total 16,000.00

2nd Draft February 23, 2010 RMA-Appendix III 8 - 1

ESCROW REGISTER REINSURED COMPANY NAME ESCROW ACCOUNT #99999 MM/DD/YYYY HH:MM

Total Requested Amount 21,000.00 Previous Requested Amount .00 Receivable Amount .00 Payment Amount 21,000.00

Previous Y-T-D Total 74,000.00 Reinsurance Year YYYY Total 15,000.00 Cumulative Y-T-D Total 89,000.00

Previous Y-T-D Total 10,000.00 Reinsurance Year YYYY(+1)Total 6,000.00 Cumulative Y-T-D Total 16,000.00

2nd Draft February 23, 2010 RMA-Appendix III 8 - 2

FCIC LIVESTOCK OPERATIONS REPORT PAGE: 1 RO XX REINSURANCE YEAR - YYYY LRCP001-C Reinsurance Company Name MONTHLY C/O MGA

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY

======PREMIUM SUBSIDY LOSSES

LIVESTOCK 9,999,999 999,999 999,999

======

DUE COMPANY DUE FCIC NET A & O SUBSIDY (99.9%) 999,999.99 COMPANY PREVIOUS PAYMENT 999,999.99 FCIC INTEREST PAID 999,999.99 ADJUSTMENTS DUE COMPANY 999,999.99 FCIC PREVIOUS PAYMENT 999,999.99 FCIC INTEREST /PENALTY 999,999.99 ADJUSTMENTS DUE FCIC 999,999.99 LIVESTOCK SETTLEMENT 999,999.99 999,999.99 SUBTOTAL 999,999.99 999,999.99 BALANCE DUE COMPANY/FCIC 999,999.99 999,999.99

======

CERTIFIED CORRECT

______

NAME TITLE DATE

NOTE: ANY FALSE CERTIFICATION MADE TO THE CORPORATION MAY SUBJECT THE MAKER TO CRIMINAL AND CIVIL PENALTIES AS PROVIDED

IN 18 U.S.C. 287,1001; 31 U.S.C. 3729 AND 3730

2nd Draft February 23, 2010 RMA-Appendix III 9 - 1

FCIC LIVESTOCK DETAIL REPORT PAGE:1 RO XX REINSURANCE YEAR - YYYY LADR001 Reinsurance Company Name MONTHLY C/O MGA.

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY ======CROP ST CO POLICY YR NAME PREMIUM SUBSIDY LOSSES ======

XX 999 999999 YYYY DOE, J 6,613 3,637 0 XX 999 999999 YYYY DOE, JO 13,092 7,725 0 XX 999 999999 YYYY DOE, JON 3,394 2,002 0 XX 999 999999 YYYY DOE, JOHN 8,626 5,089 0 XX 999 999999 YYYY DOE, JESS 1,008 554 0 XX 999 999999 YYYY DOE, SALLY 4,270 2,518 0 XX 999 999999 YYYY DOE, JAN 1,762 1,040 0 XX 999 999999 YYYY DOE, JANE 3,304 1,949 0 XX 999 999999 YYYY DOE, JODY 2,664 1,572 0 XX 999 999999 YYYY DOE, RICH 2,121 1,251 0 XX 999 999999 YYYY DOE, JACK 707 417 0 XX 999 999999 YYYY DOE, BOB 8,354 4,930 0

TOTAL 55,915 32,684 0

2nd Draft February 23, 2010 RMA-Appendix III 9 - 2

LIVESTOCK SETTLEMENT REPORT PAGE 1 RO XX REINSURANCE YEAR YYYY LIVPRT01 Reinsurance Company Name C/O MGA

CURRENT DATE: MM/DD/YYYY HH.MM.SS CUTOFF DATE: MM/DD/YYYY

FUND TOTAL PRODUCER LOSS GAIN PREMIUM PREMIUM SUBSIDY LOSSES RATIO LOSS

COMMERCIAL LRP 9,999,999 9,999,999 999,999 999,999 41.1 COMMERCIAL LGM .0 PRIVATE MARKET LRP .0 PRIVATE MARKET LGM .0 ******************************************************************************************************************************** NET BOOK TOTALS 9,999,999 9,999,999 999,999 999,999 41.1

COMMERCIAL 9,999,999 9,999,999 999,999 999,999 41.1 PRIVATE MARKET .0 ******************************************************************************************************************************** RETAINED TOTALS 9,999,999 9,999,999 999,999 999,999 41.1

COMMERCIAL 9,999,999 9,999,999 999,999 999,999 41.1 PRIVATE MARKET .0 ******************************************************************************************************************************** COMPANY SHARE AFTER STOP LOSS 9,999,999 9,999,999 999,999 999,999 41.1 999,999

COMMERCIAL 9,999,999 9,999,999 999,999 999,999 41.1 PRIVATE MARKET .0 ******************************************************************************************************************************** FCIC SHARE 9,999,999 9,999,999 999,999 999,999 41.1

DUE COMPANY DUE FCIC SUBSIDY 999,999 LOSSES DUE FROM FCIC 999 PREMIUM DUE FCIC 9,999 REINSURANCE PREMIUM DUE FCIC 99,999 ******************************************************************************************************************************** SUBTOTAL 999,999 99,999 ******************************************************************************************************************************** LIVESTOCK ADJUSTMENT 999,999

2nd Draft February 23, 2010 RMA-Appendix III 9 - 3

Weekly Transaction Cut-off Dates

July 2, 2010 January 7, 2011 – Accounting Cutoff July 9, 2010 – Accounting Cutoff January 14, 2011 July 16, 2010 January 21, 2011 July 23, 2010 January 28, 2011 July 30, 2010 February 4, 2011 August 6, 2010 – Accounting Cutoff February 11, 2011 – Accounting Cutoff August 13, 2010 February 18, 2011 August 20, 2010 February 25, 2011 August 27, 2010 March 4, 2011 September 3, 2010 March 11, 2011 – Accounting Cutoff September 10, 2010 – Accounting Cutoff March 18, 2011 September 17, 2010 March 25, 2011 September 24, 2010 April 1, 2011 October 1, 2010 April 8, 2011 – Accounting Cutoff October 8, 2010 – Accounting Cutoff April 15, 2011 October 15, 2010 April 22, 2011 October 22, 2010 April 29, 2011 October 29, 2010 May 6, 2011 – Accounting Cutoff November 5, 2010 May 13, 2011 November 12, 2010 – Accounting Cutoff May 20, 2011 November 19, 2010 May 27, 2011 November 26, 2010 June 3, 2011 December 3, 2010 June 10, 2011 – Accounting Cutoff December 10, 2010 – Accounting Cutoff June 17, 2011 December 17, 2010 June 24, 2011 December 24, 2010 December 31, 2010

2nd Draft February 23, 2010 RMA-Appendix III 160 - 1

Fund Cutoff and LRR Dates

Mod Sales Sales Closing Fund Fund Fund Closing Date Week Day Cutoff Week Cutoff Week Day Cutoff Date LRR 1% Day LRR 3% LRR 6% 7/1/2010 Saturday 7/30/2010 Monday 9/3/2010 Wednesday 10/1/2010 7/31/2010 8/2/2010 Wednesday 9/3/2010 Friday 10/1/2010 Sunday 11/5/2010 8/15/2010 8/16/2010 Wednesday 9/17/2010 Friday 10/15/2010 Sunday 11/19/2010 8/31/2010 Thursday 10/1/2010 Saturday 10/29/2010 Monday 12/3/2010 9/30/2010 Saturday 10/29/2010 Monday 12/3/2010 Wednesday 12/31/2010 10/31/2010 11/1/2010 Wednesday 12/3/2010 Friday 12/31/2010 Sunday 2/4/2011 11/20/2010 11/22/2010 Wednesday 12/24/2010 Friday 1/21/2011 Sunday 2/25/2011 11/30/2010 Thursday 12/31/2010 Saturday 1/28/2011 Monday 3/4/2011 12/31/2010 Sunday 2/4/2011 Tuesday 3/4/2011 Thursday 4/1/2011 1/31/2011 Wednesday 3/4/2011 Friday 4/1/2011 Sunday 5/6/2011 2/1/2011 Thursday 3/4/2011 Saturday 4/1/2011 Monday 5/6/2011 2/15/2011 Thursday 3/18/2011 Saturday 4/15/2011 Monday 5/20/2011 2/28/2011 Wednesday 4/1/2011 Friday 4/29/2011 Sunday 6/3/2011 3/15/2011 Thursday 4/15/2011 Saturday 5/13/2011 Monday 6/17/2011 3/31/2011 Saturday 4/29/2011 Monday 6/3/2011 Wednesday 7/1/2011 5/1/2011 5/2/2011 Wednesday 6/3/2011 Friday 7/1/2011 Sunday 8/5/2011 5/31/2011 Thursday 7/1/2011 Saturday 7/29/2011 Monday 9/2/2011 7/1/2011 Sunday 8/5/2011 Tuesday 9/2/2011 Thursday 9/30/2011 7/31/2011 8/1/2011 Wednesday 9/2/2011 Friday 9/30/2011 Sunday 11/4/2011

2nd Draft February 23, 2010 RMA-Appendix III 161 - 1

Acronyms______

A&O Administrative & Operating Expense ACT The Federal Crop Insurance Act (7 U.S.C. 1502 et seq.) ADM Actuarial Data Master AFS Actuarial Filing System AGR Adjusted Gross Revenue (Whole-farm coverage based on producer’s Schedule F Adjusted Gross Revenue-Lite (Whole-farm coverage based on producer’s Schedule AGR-L F using less commodities to qualify AIP Approved Insurance Provider APDD Actuarial & Product Design Division APH Actual Production History (producers records for developing coverage) ARD Acreage Reporting Date ARPA Agricultural Risk Protection Act (also known as the Crop Insurance Act of 2000) CAT Catastrophic Risk Protection CEO Coverage Enhancement Option CIH Crop Insurance Handbook CIMS Comprehensive Information Management System CLU Common Land Unit CO RMA Compliance Office COB Close of Business CY Crop Year DQS Data Quality Section DY Determined Yields eDAS Electronic Data Acceptance System EFT Electronic Funds Transfer FAOB Financial & Accounting Operations Branch FCIC Federal Crop Insurance Corporation (RMA) FIPS Federal Information Processing Standards FSA Farm Service Agency FY Fiscal Year (i.e., Oct. 1, 2010 to Sep 30, 2011 is the 2011 fiscal year) GRP Group Risk Plan IRM Information Resources Management IS Insurance Services ITS Ineligible Tracking System KCO RMA Kansas City Office LAC Loss Adjustment Contractor LAM Loss Adjustment Manual LAN Local Area Network Deleted: LFA LGM Livestock Gross Margin Deleted: Late Filed Acreage Reduction LRP Livestock Risk Protection LRR Late Reporting Reduction MGA Managing General Agency MPCI Multiple Peril Crop Insurance MY Master Yields NAD National Appeals Division NASS National Agricultural Statistics Service NCIS National Crop Insurance Services 2nd Draft February 23, 2010 RMA-Appendix III 162 - 1

PAAD Product Analysis and Accounting Division PASD Product Administration and Standards Division PASS Policy Acceptance and Storage System PHTS Policyholder Tracking System PIC Policy Issuing Company PM Product Management PRD Production Reporting Data PSR PASS Status Report RAS Reinsurance Accounting System RMA Risk management Agency RME Risk Management Education RSD Reinsurance Services Division RO RMA Regional Office RY Reinsurance Year SBI Substantial Beneficial Interest SBOB Summary Book of Business SCD Sales Closing Date SF Standard Form (prefix to form numbers) SPOI Special Provisions of Insurance SRA Standard Reinsurance Agreement T-Yield Transitional Yield UCM Underwriting Capacity Manager USDA United States Department of Agriculture WA Written Agreement WDC RMA Washington, DC WUA Written Unit Agreement XML Extensible Markup Language

2nd Draft February 23, 2010 RMA-Appendix III 162 - 2

Page 15: [1] Deleted Troy Brady 4/5/2010 7:53:00 PM Determination of LFA

The A&O subsidy applicable to the eligible crop insurance contract will be reduced when acreage records are accepted in PASS for the first time after the transaction cutoff date for the sixth (6th) full week after the week which includes the latest acreage reporting date as specified in the ADM file for the crop, county and plan code within the same Fall/Spring seed cycle designation. The PASS will compare the processing date of accepted acreage reporting date to the final acreage reporting date shown on the ADM for each crop within a policy except as noted below:

If a policy has multiple crops in a county, the latest acreage reporting date will be used to determine the weeks late for all crops established with a 14 record in the county. This only applies to the crops with the same Fall/Spring seed cycle designation. Crops with the latest acreage reporting date for the crop, county and plan code of February 1 of the reinsurance year are considered Fall. Crops with all other acreage reporting dates will be considered Spring. If the acreage is not accepted by the 6th week after the acreage reporting deadline, the expense reimbursement for eligible crop insurance contracts will be reduced by percentages shown on the LFA reduction chart in Section 21.C., Accounting Processing Considerations. Refer to Exhibit 11-8 for written agreement LFA determination.

For AGR and AGRLite, the expense reimbursement will be reduced on AGR contracts in cases that the Annual Farm Report is accepted in PASS after the transaction cutoff date for the 6th full week after the week which includes the sales closing date as specified in the ADM file for the crop, county and plan code. The expense reimbursement for eligible AGR and AGRLite insurance contracts will be reduced by the percentage shown on the LFA reduction chart.

Crops with a single sales closing date with multiple planting periods that extend from fall to spring will be considered Spring Seed cycle codes and use the latest acreage reporting date for late filed acreage determinations. The expense reduction will be reduced when the acreage records reported to PASS are accepted after the transaction cutoff date for 6th full week after the week which includes the latest acreage reporting date.

For Nursery (0073) and Florida Fruit Trees (0207 through 0214) transaction cutoff date for the 6th full week after the week that includes either:

The signature date for new policies from the corresponding accepted Type 14 record for the crop and county, or

The sales closing date for carryover policies.

See Nursery and Florida Fruit Tree A&O Reduction/Fund Designation cutoff table in Exhibit X

Page 45: [2] Deleted Troy Brady 4/5/2010 10:15:00 PM The A&O Subsidy applicable to the eligible crop insurance contract will be reduced in accordance with Section IV.b.(9) of the SRA.the chart below, when acreage records are accepted in PASS for the first time after the transaction cutoff date for the 6th full week after the week which in includes the latest acreage reporting date as specified in the ADM and PASS processing considerations.

An example of the FCIC Administrative Reduction Worksheet for late filed acreage is provided in Exhibit 5-2.

Appendix III Exhibit 11

Federal Crop Insurance Federal Crop Controlling Procedural Authority Insurance Act 1/15/10

Administrative Regulations (Other than Crop Insurance Policies)

Reinsurance Agreements

Appendix I

Appendix II

Appendix III CROP INSURANCE PROCEDURES A-III Record Layouts and Appendix IV Validations must be consistent with applicable program procedures Standard & Livestock Price Reinsurance Agreements

Program Development Policy Provisions Submission must be Standards reflected in Policy Handbook Basic Provisions

New Program Crop Provisions Development Handbook Endorsements

Special Provisions of Insurance Program Evaluation Handbook

Final Agency Exceptions Determinations Allowed by the Policy

Bulletins Informational Memorandums Product Management Bulletins

Is Filed With Managers Bulletins

RO Server Bulletins

Written Agreement Handbook Release Actuarial Standards

Actuarial Transitional Yield Documents Guide Handbook Actuarial Data Governs Master Actuarial Classification Documentation of Standards MPCI Ratemaking Handbook Procedures Ineligible Tracking System Handbook

Underwriting Guidelines

Document and Individual Crop Supplemental Crop Insurance Standards GRP Standards Standards Handbook Handbooks & Handbook Handbook Underwriting Guides

Individual Livestock AGR & AGR-Lite Rainfall & Standards Privately Developed Standards Vegetation Index Handbooks & Products Standards Handbooks Handbooks Underwriting Guides Handbooks

Each Handbook Will List The Order Of Controlling Documents Between Each Other as Necessary

Loss Adjustment Guidelines

Random Path RandomCrop Loss Path Prevented Planting Appraisal Random Path Loss Adjustment AdjustmentAppraisal Loss Adjustment Handbook Appraisal Manual StandardsHandbook Standards Handbooks Handbook Handbook Applicable Control Each Handbook Will List The Order Of Controlling Documents Between Each Other as Necessary Elements

Program Oversight FSA RMA Applicable Handbook- Insurance Control Compliance Control FCIC Program Element (ICE) Handbook Elements Integrity Files 4-RM CLEAN VERSION OF 2011 SRA—Appendix IV (SECOND DRAFT): 02-23-10

APPENDIX IV

I. GENERAL QUALITY CONTROL PLAN REPORTING REQUIREMENTS

(a) The Company shall annually provide an explanation of its Quality Control Plan with its Plan of Operations. The explanation shall provide a detailed description that demonstrates that its Quality Control Plan meets or exceeds the following internal control elements:

(1) Control Environment. The control environment sets the tone of an organization, influencing the control consciousness of its people. Factors include the integrity; ethical values and competence of the entity’s people; management’s philosophy and operating style; the way management assigns authority and responsibility, and organizes and develops its people; and the attention and direction provided by the Company’s management.

(2) Risk Assessment. A precondition to risk assessment is establishment of objectives that shall be identified in the Quality Control plan. Risk assessment is the identification and analysis of relevant risks to achieve the stated objectives of the Company’s Quality Control plan, and form the basis for determining how the Company will manage risk to the crop insurance program.

(3) Control Activities. The Company shall identify the way the policies and procedures that help ensure management directives are carried out. These controls help ensure that necessary actions are taken to address risks and limit non-compliance. They include a range of activities as diverse as approvals, authorizations, verification, reconciliation, reviews of operating performance, security of assets and segregation of duties. The Company plan will also include under Control Activities all the required reviews and obligations required by Appendix IV.

(4) Information and Communication. The Company’s plan shall include how pertinent information is identified, captured and communicated in a form and timeframe that enables the Company and its affiliates to carry out their responsibilities. Include an explanation of standard reports containing operational, financial and compliance related information that make it possible to run and control the business.

(5) Monitoring. The Company shall articulate the process used to monitor their Quality Control Plan. The process will assess the quality of the Company’s performance during each reinsurance year. This is accomplished through ongoing monitoring activities, separate evaluations, or a combination of the two. The process will also identify how quality control deficiencies are reported up through the chain of command and

1 DB04/763432.0030/2554246.1 WP08 CLEAN VERSION OF 2011 SRA—Appendix IV (SECOND DRAFT): 02-23-10

how the most serious matters are reported to the Company’s top management. (b) The Company’s quality controls will be evaluated through compliance reviews to ensure compliance with this Agreement. FCIC will confer with the Company’s official in charge of quality control concerning any identified deficiency and appropriate recourse. Any deficiency in the Company’s quality controls that has been substantiated by FCIC will be addressed by the Company’s Quality Control Plan for the reinsurance year following the reinsurance year in which the Company is notified of such deficiency.

[Note – Attempt is to acknowledge the difference between an accepted quality control plan and effective quality control. Even though a plan is submitted and accepted does not mean all appendix IV requirements will be adhered to. The Company should be evaluated as appropriate in a manner that recognizes the difference between a plan weakness (for example, inadequate follow-up training which should be addressed point forward) versus outright failure of a requirement (for example, did not do a required $100K review which should be addressed under the then current Agreement).]

II. TRAINING OF AGENTS, LOSS ADJUSTERS, AND OTHER PERSONNEL

(a) GENERAL COMPANY RESPONSIBILITIES

(1) The Company is responsible for establishing a “Training and Performance Evaluation Plan” (TPEP) for all persons subject to the requirements of section VIII. of Appendix I. The TPEP shall be submitted to FCIC in the Company’s Plan of Operations, in accordance with Appendix II. Nothing in these requirements precludes the Company from providing training that exceeds these requirements.

(2) The TPEP shall:

(A) Include industry accepted minimum standards for:

(i) Test proficiency; and

(ii) Satisfactory work performance.

(B) Describe the procedures and control measures used to monitor and evaluate an individual’s work performance against the minimum standards under subparagraph (a)(2)(A);

(C) Describe the additional training and work monitoring required by the Company of any individual who fails to meet the minimum standards specified in subparagraph (a)(2)(A);

2 DB04/763432.0030/2554246.1 WP08 CLEAN VERSION OF 2011 SRA—Appendix IV (SECOND DRAFT): 02-23-10

(D) Describe the training curriculum developed from subsections (b) and (c);

(E) Describe the training needs of those individuals subject to the requirements of section VIII. of Appendix I with respect to specific crops, areas, and plans of insurance serviced by such individuals;

(F) List the name of the person or persons responsible for the TPEP process identified in the Exhibit IV.(e) of the Company’s Plan of Operations, in accordance with Appendix II;

(G) Provide a timeline for training all persons identified in paragraph (a)(1) prior to the time the work is to be performed;

(H) Describe the procedure established by the Company to maintain, retain, and provide to FCIC upon request:

(i) Documentation showing the results of actions taken to track and evaluate historical performance with respect subparagraph (a)(2)(A) for all persons subject to the requirements of section VIII. of Appendix I; and

(ii) Records of all corrective, follow-up, or remedial actions taken with respect to any person identified in clause (i) that does not meet the standards specified in subparagraph (a)(2)(A).

(I) Contain a provision to conduct such other training that may be required by FCIC.

(3) An annual Training and Performance Evaluation Report (TPER) shall be submitted with the Company’s Plan of Operations, in accordance with Appendix II. The annual TPER shall provide:

(A) An evaluation of each agent and loss adjuster comparing their performance to the standard specified in subparagraph (a)(2)(A). Such performance evaluation shall include a review of the number and type of any errors or omissions related to the compliance with obligations under the Agreement; and

(B) A report of any remedial actions taken by the Company to correct any error or omission or ensure compliance with the Agreement.

[Note – In accordance with 7 U.S.C. 1515(f)(1)-(2) of the Act FCIC is required to both identify and review any agent with loss claims equal to or greater than 150 percent of the mean for other agents in the area and any adjuster

3 DB04/763432.0030/2554246.1 WP08 CLEAN VERSION OF 2011 SRA—Appendix IV (SECOND DRAFT): 02-23-10

with accepted or denied claims equal to or greater than 150 percent of other adjusters in the area, as determined by FCIC. Requiring AIPs to compare loss ratios would result an incomplete analysis since AIPs would not have the ability to compare loss ratios on an industry wide basis. Under 7 U.S.C. 1515(f)(3), AIPs are only required to annually review the general performance of agents and adjusters.]

(b) SALES TRAINING CURRICULUM AND REQUIREMENTS

(1) The sales training curriculum developed by the Company shall include those eligible crop insurance contracts the Company will be selling or servicing in the States identified in the Company’s Plan of Operations, in accordance with Appendix II, and include at a minimum (for new agents and employees performing functions relating to sales or service,

comprehensive information on all of the following, and for experienced agents and employees performing functions relating to sales or service, comprehensive information on updates or changes in the following), sufficient information to make such persons proficient in: (A) The meaning of the terms and conditions of the Common Crop Insurance Policy, Basic Provisions and applicable Crop Provisions, published at 7 C.F.R. part 457, and the other available plans of insurance such as the Group Risk Plan published at 7 C.F.R. part 407, the revenue insurance plans, pilot programs, and other plans of insurance found on FCIC’s website at www.rma.usda.gov, and any changes thereto;

(B) All applicable endorsements, Special Provisions and options and any changes thereto;

(C) The benefits and differences between the applicable plans of insurance specified in subparagraph (A) and their suitability to farming conditions and operations in the relevant area;

(D) The actuarial documents and their use;

(E) The procedures applicable to the sales and service of eligible crop insurance contracts and any changes thereto;

(F) How to properly fill out and submit all applicable forms, documents, notices and reports;

(G) The requirements under applicable Federal civil rights statutes and methods to encourage program participation, including participation of limited resource, women, minority, and underserved producers or in underserved areas;

4 DB04/763432.0030/2554246.1 WP08 CLEAN VERSION OF 2011 SRA—Appendix IV (SECOND DRAFT): 02-23-10

(H) How to recognize anomalies in reported information and common indicators of misrepresentation, fraud, waste or abuse, the process to report such to the Company, and appropriate actions to be taken when anomalies or evidence of misrepresentation, fraud, waste or abuse exist;

(I) Compliance with applicable laws and regulations governing business conduct and ethics, including rebating prohibitions, conflicts of interest, and controlled business, etc.; and

(J) Any other requirements as may be established by FCIC.

(2) The Company shall ensure the following:

(A) Any new agent or other person who solicits or otherwise promotes crop insurance sales on behalf of the Company shall participate in a structured training program of at least 12 hours on all of the items listed in paragraph (1) before selling or servicing any eligible crop insurance contract.

(B) Any experienced agent shall annually complete at least 3 hours of structured training, on updates or changes specifically related to the items listed in paragraph (1), or that are identified by FCIC or the Company where errors or omissions were identified during quality control reviews or processing of the sales related documents.

(C) All new agents shall pass a basic competency test before they can sell or service an eligible crop insurance contract (all test results shall be maintained by each Company in accordance with section IV.(g) of the Agreement). Basic competency tests shall specifically relate to the items listed in paragraph (1) and determine the proficiency of the person who completed the required training. Additionally, the Company shall review the test results and document follow-up training for any deficiencies identified.

[Note – The above modifications clarify the distinction between new agents and experienced agents. New agents should be trained and tested before selling policies. Experienced agents simply need to complete their training on an annual basis and their testing every three years. Minimum training hour requirements need to remain in the SRA in order to ensure a degree of uniformity among the Companies and satisfy some state insurance department concerns].

(D) All agents shall retake and pass the basic competency test (in accordance with the standard established in subparagraph (a)(2)(A)(i)) every three years. 5 DB04/763432.0030/2554246.1 WP08 CLEAN VERSION OF 2011 SRA—Appendix IV (SECOND DRAFT): 02-23-10

(E) If the agent was not employed by or did not contract with the Company in the previous year(s), the Company shall obtain, and make available upon request, documentation that the agent has passed the basic competency test within the past 3 years with another AIP.

(F) Proficiency is established by passing a written test meeting the standards of the TPEP, and maintaining satisfactory work performance during the respective crop year measured against the minimum standards established under subparagraph (a)(2)(A).

(G) In addition, the agent is considered to maintain satisfactory work performance if the results of reviews to respond to producer complaints, State Departments of Insurance or FCIC inquiries, or other quality control reviews identify no material errors.

[Note - At the time this certification would be made, little required training will have been performed for the upcoming reinsurance year. There are multiple items impacting training that may be unknown, such as changes to the CIH, the LAM, and policy provisions. For experienced agents, servicing of policies may be continuous throughout the year. As such, it is impractical to require this certification in advance of a reinsurance year.]

(c) LOSS ADJUSTMENT TRAINING CURRICULUM AND REQUIREMENTS

(1) The loss adjustment training curriculum developed by the Company shall include those eligible crop insurance contracts which the Company will be selling or servicing in the State, as identified by the Company in its Plan of Operations, in accordance with Appendix II, and include at a minimum (for new loss adjusters, or employees performing functions related to loss adjustment, all of the following and for experienced loss adjusters or employees performing functions related to loss adjustment, updates and changes), sufficient information to make such persons proficient in:

(A) The items listed in subsections (b)(1)(A), (B), (C), (D), (F), (H), (I), and (J);

(B) The procedures applicable to loss adjustment of eligible crop insurance contracts and any changes thereto;

(C) How to properly verify the accuracy of the information contained on applicable forms, documents, notices and reports;

(D) How to properly determine the amount of production to be used for the purposes of determining losses;

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(E) The requirements under applicable Federal civil rights statutes; and

(F) Any other requirements as may be established by FCIC.

(2) The Company shall ensure the following:

(A) Any new loss adjuster shall participate in a structured training program of at least 60 hours (which includes at least 24 hours of classroom training) on all of the items listed in paragraph (1) before signing any claim under an eligible crop insurance contract.

(B) Any experienced loss adjuster shall annually complete at least 16 hours of structured training (which includes at least 8 hours of classroom training) on updates or changes specifically related to the areas listed in paragraph (1) or that are identified by FCIC or the Company as errors or omissions discovered during quality control reviews or processing of the loss related documents.

(C) All new loss adjusters shall pass a basic competency test (all test results shall be maintained by each Company in accordance with section IV.(g) of the Agreement) before signing any claim under an eligible crop insurance contract. Basic competency tests shall specifically relate to the areas listed in paragraph (1) and determine the proficiency of the persons who completed the required training to accurately and correctly determine the amount of the loss and verify applicable information. Additionally, the Company shall review the test results and document follow-up training initiatives for any deficiency.

[Note - The above modifications clarify the distinction between new adjusters and experienced adjusters. New adjusters should be trained and tested before signing claims. Experienced adjusters simply need to complete their training on an annual basis and their testing every three years. Minimum training hour requirements need to remain in the SRA in order to ensure a degree of uniformity among the Companies and satisfy some state insurance department concerns.]

(D) All loss adjusters shall retake and pass the competency test every three years.

(E) If the loss adjuster was not employed by or did not contract with the Company in the previous year(s), the Company shall obtain, and make available upon request, documentation that the loss adjuster has passed the basic competency test within the past 3 years with another AIP.

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(F) Proficiency is established by passing a written test meeting the standards of the TPEP, and maintaining satisfactory work performance during the respective crop year measured against the minimum standards established under subparagraph (a)(2)(A).

(G) In addition, the loss adjuster is considered to maintain satisfactory work performance if the results of reviews to respond to producer complaints, State Departments of Insurance or FCIC inquiries, or other quality control reviews identify no material errors.

[Note - At the time this certification would be made, there are multiple items that could impact training that may be unknown, such as changes to the CIH, the LAM, and policy provisions. As such, it is impractical to require this certification in advance of a reinsurance year.]

III. QUALITY CONTROL GUIDELINES

(a) GENERAL COMPANY RESPONSIBILITIES

The Company is responsible for:

(1) Establishing a system of internal controls to meet all FCIC quality control guidelines included in this Appendix.

(2) In addition to the requirements of section I.(a), developing and providing a quality control plan detailing how the Company will carry out its quality control program. This quality control plan will be submitted with the Plan of Operations, in accordance with Appendix II and shall include:

(A) The name and title of an official in charge of quality control and who is independent of sales and claims;

[Note – The above has been deleted because individuals performing Quality Control Reviews in any given year will vary for most Companies depending on workload issues. Requiring a complete separate set of personnel solely for performing reviews is impractical.]

(B) The types of reviews that will be conducted and the time period when such eligible crop insurance contracts will be selected for each review; and

(C) A complete description of the process to be followed by the reviewers for conducting each of the reviews.

(3) Conducting all quality control reviews using objective and unbiased persons, who were not involved in the sales, supervision of sales, or establishment of the guarantee and did not participate in adjusting the loss

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for the eligible crop insurance contract reviewed. Quality control reviews shall be independent.

[Note – Above requirements (2)(A) and (3) should address much of RMA’s segregation of duty concerns with respect to the performance of quality control reviews.]

(4) Verifying that:

(A) The application, production report, acreage report, notice of loss or claim, or other relevant document information for the applicable review category was provided timely;

(B) The policy documents, including actuarial documents, have been properly used;

(C) The agent or loss adjuster has complied with procedures;

(D) The information provided by the policyholder, agent, or loss adjuster is true and accurate through appropriate means which may include, but are not limited to, automated processing system edits designed to confirm specific procedural requirements, interviews, APH reviews, field inspections or file reviews and obtaining production or other records from third parties; and

(E) The crop insurance contract constitutes an eligible crop insurance contract.

[Note – Inspection has been deleted as a definition. However, the verification requirements have been reincorporated under item (4) above. This placement has broader applicability. These general requirements, when used in conjunction with the recommended definitions for the various review categories plus the added review category requirement detail, will provide a clearer and more specific description of the various review procedures.]

(5) Implementing procedures for timely detection and reporting of suspected misrepresentation, fraud, waste, or abuse by policyholders, employees or affiliates or within the Federal crop insurance program.

(6) Notifying FCIC of suspected misrepresentation, fraud, waste or abuse in accordance with section IV of this Appendix and assisting FCIC in subsequent investigations.

(7) Implementing administrative procedures to resolve and correct errors and omissions identified during a review.

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(8) Correcting, in accordance with procedures, any errors or omissions identified during any review.

(9) Maintaining, in accordance with section IV.(g) of the Agreement, all documentation related to any review required by this Appendix.

(10) Establishing a process to respond to complaints by policyholders, the public, or state insurance departments, or referred to the Company by FCIC, documenting the complaint and actions taken by the Company in response, and providing such documentation to FCIC upon request.

(11) Following FCIC approved procedures related to companion eligible crop insurance contracts in force for other persons sharing in the crop.

(12) Taking such actions as are reasonable and appropriate to correct any non- compliance with the Agreement.

(13) Preparing and providing to FCIC within 30 business days of completing each review, an Electronic Quality Control Review Record (EQCRR or the Appendix III Type 57 Record) detailing the results of the review that will, at a minimum:

(A) For eligible crop insurance contracts which did not have errors or omissions detected exceeding allowable tolerances, identify by contract number and crop, the name and title of the person who conducted the review, the date the review was completed, and the type of review conducted.

(B) For eligible crop insurance contracts which had errors or omissions exceeding allowable tolerances, identify by contract number and crop, the name and title of the person who conducted the review, the date the review was completed and the type of review conducted, the type of error or omission detected, the corrective action taken and if applicable, the monetary effect or the effect on the APH.

(C) Include other relevant quality control information that may be required as determined by consensus of the policy review work group.

(14) Retaining all documents, in accordance with section IV.(g) of the Agreement, obtained in the course of the reviews conducted and all forms completed by the quality control reviewer and providing such documents to FCIC upon request. All review documentation is considered part of the policyholder file.

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[Note – Type 57 reporting requirements should instead be sufficiently structured such that the annual report and certification is redundant and unnecessary. Type 57 record content, purpose and procedure will still need to be addressed by Industry compliance and quality control personnel.]

(b) FCIC RESPONSIBILITIES

(1) FCIC will evaluate the Company's submitted Electronic Quality Control Review Records (EQCRR or the Appendix III Type 57 Record) to assess its compliance with this Appendix.

(2) FCIC will conduct periodic compliance evaluations of the Company's quality control programs to determine compliance with the requirements of this Appendix, assess the effectiveness of the systems, and the accuracy of the Company's conclusions with regard to the quality control reviews conducted under this Appendix. These evaluations will be applied consistently and uniformly across all AIPs.

(3) FCIC will conduct periodic evaluations or reviews of the operations of the Company or its affiliates relating to the Federal crop insurance program. These evaluations or reviews will be applied consistently and uniformly across all AIPs and will serve as the basis for determining any program error rate.

(4) In accordance with Section 515 [7 U.S.C. 1515] (a)(2) of the Act, FCIC shall work actively with approved insurance providers to address program compliance and integrity issues as such issues develop.

[Note – the above four bullets detail what RMA is currently striving to do and tie into other aspects of the Appendix IV recommendations. If the existence of a specific subsection titled “FCIC Responsibilities,” is objectionable, the intent of the four bullets could be appropriately placed within other sections of this appendix.]

(c) REVIEW CATEGORIES AND REQUIREMENTS

The Company is required to identify and conduct the following reviews on a reinsurance-year basis unless otherwise specified herein and report the results to FCIC via the Type 57 Record (EQCRR) in accordance with Appendix III. These reviews are intended to protect program integrity and ensure that the Company’s internal controls are in place, operational, and provide reasonable assurance that the liability and indemnities are properly established in accordance with FCIC approved procedures. If any review meets the criteria for one or more review categories, the review will count toward the applicable minimum review requirement for such review category. 11 DB04/763432.0030/2554246.1 WP08 CLEAN VERSION OF 2011 SRA—Appendix IV (SECOND DRAFT): 02-23-10

(1) Program Reviews.

For program reviews, data mining will be utilized in the identification of crop insurance contracts which, due to anomalies or other program aspects, merit monitoring or review by the Company. Program reviews to be conducted during the current reinsurance year will not exceed the greater of 110 percent of the Company’s previous years’ program reviews or three percent of the total paid indemnities on a crop/county basis for the current reinsurance year, unless FCIC provides notice that additional reviews are required in order to address specific program integrity concerns and these additional reviews are agreed upon by consensus of the policy review work group.

(A) FCIC Selected Data Mining Reviews. The Company shall conduct reviews or monitoring programs of eligible crop insurance contracts, entities, agents, loss adjusters, or affiliates for which anomalies have been identified by FCIC as may be determined necessary by FCIC to protect program integrity. This review category will also include instances where, in accordance with the FSA/RMA 4-RM procedures, the Company is required by FCIC to verify information certified by a policy holder in order to reconcile data as identified by a Common Information Management System (CIMS) Discovery Report.

[Note – subparagraph (A) above preserves FCIC’s ability, under their 2nd draft categories of data mining and individual policy reviews, to do or require what FCIC believes, at their discretion, to be necessary and appropriate. It is also an appropriate place to reference data reconciliation which currently only resides in the Act and the 4-RM.]

(B) Data Mining Policy Reviews. These reviews concern general program applicability and will be defined and agreed upon by the policy review work group. Specific contracts subject to monitor or review will be identified by data mining. The Company shall conduct reviews or monitoring programs of eligible crop insurance contracts identified through this process. The results of current or past reviews will be analyzed by the policy review work group for identification of program vulnerabilities or weakness and recommended resolution (i.e. policy change, procedural change, training, etc.). Quality control efficiencies will be gained through elimination of redundancies and by providing a more fluid and flexible quality control program as it moves through time. For example, if a review series produces no meaningful result, it may be terminated or replaced. As new policies or concepts are introduced into the program, concerns may be identified and responded to faster and more appropriately.

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(i) Data mining policy reviews may include, but are not limited to situations involving detection of disparate performance of agents or loss adjusters, simplified claims, APH tolerance, crop insurance contracts where the same adjuster has been involved in three consecutive claim years, area or group based plans of insurance (such as GRP/GRIP, rainfall or vegetation index policies, or apiculture), biotechnology endorsements, 508(h) or pilot programs, or any area of concern not addressed by the other review categories identified in this Appendix.

(ii) Appropriate timing for receipt of identified reviews from FCIC will be determined, and

(iii) Based on the identified concern, appropriate review criteria or procedures will be determined (e.g. APH review, field inspection, file review, growing season inspection, or pre- harvest inspection).

[Note – subparagraph (B) above, Data Mining Policy Reviews, incorporates a proactive relationship in accordance with Section 515 [7 U.S.C. 1515] (a)(2) of the Act. As here described, data mining may be used as a vehicle for validation of most any program (current or future) vulnerability or weakness.]

[Note – The operational review category is unnecessary when specific review categories are better defined. The stated purpose has been more appropriately incorporated under (c) above.]

[Note – APH tolerance reviews have been placed under the Program Review category of Data Mining Policy Reviews above, to be addressed via data mining.]

(2) Conflict of Interest Reviews: In accordance with the conflict of interest disclosure requirements contained in section VI(e) of Appendix I, the Company shall conduct conflict of interest reviews based on the following criteria:

[Note – The procedure in (A) and (B) below captures the full extent of when mandatory reviews are required and when discretionary reviews are applicable in accordance with MGR-08-001. There is no need to reference the MGR. Clarity has been added based on policy type (per added definitions) with respect to what must be done when conducting the review.]

(A) A mandatory conflict of interest review will consist of a file review for area or group based plans of insurance and a field 13 DB04/763432.0030/2554246.1 WP08 CLEAN VERSION OF 2011 SRA—Appendix IV (SECOND DRAFT): 02-23-10

inspection, file review, and as applicable, an APH review for yield based or non-yield based plans of insurance. A conflict of interest review is mandatory when the person making a disclosure:

(i) Has a share in a crop insured under any eligible crop insurance contract insured by the Company, or

(ii) Has a relative with a substantial beneficial interest in any insurance contract insured by the Company.

(B) An AIP discretionary review may be conducted on any disclosure category not included in (A)(i) or (ii) above as determined by the Company.

[Note – Consecutive loss adjuster reviews have been placed under the Program Review category of Data Mining Policy Reviews above, to be addressed via data mining.]

(3) $100,000 Indemnity Reviews.

(A) This review will consist of:

(i) A file review for an area or group based plan of insurance; or

(ii) A field inspection and file review for a non-yield based plan of insurance including a review of the previous year’s certified revenue for plans 61 and 63 (AGR and AGR- Lite); or

(iii) A field inspection, file review and APH review for a yield based plan of insurance including a review of the previous year’s certified revenue for plan 47 (ARH).

(B) The Company shall identify and conduct a $100,000 indemnity review on any eligible crop insurance contract where:

(i) Any single indemnity exceeds $100,000 due to prevented planting and/or production losses for a yield based plan of insurance or any indemnity exceeds $100,000 for an area or group based plan of insurance loss;

(ii) Any aggregate indemnity, including claims that were closed, and subsequent claims exceed $100,000 due to prevented planting and/or production losses for a yield based plan of insurance; or

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(iii) The indemnity exceeds $100,000 on a non-yield based plan of insurance or the revenue loss exceeds $100,000 on a yield based plan of insurance.

[Note – It is more logical to address prevented planting as a separate category and view production and/or revenue as cumulative. However, the above retains RMA’s desire to keep prevented planting and production cumulative and separate from revenue. Recommended plan of insurance and review definitions have been incorporated for clarity.]

(4) AIP Discretionary Reviews. As determined by the AIP, these reviews may include, but are not limited to an APH review, a conflict of interest review, a field inspection, a file review, a growing season inspection, or a pre- harvest inspection.

[Note – AIP discretionary reviews are a valuable program integrity component that need to be recognized.]

[Note – BE reviews, rainfall and vegetation index reviews, and acreage colony report reviews have been more appropriately placed under the Program Review category of Data Mining Policy Reviews above, to be addressed via data mining. This allows greater flexibility in designing targeted review criteria for programs that are likely to evolve over time.]

(5) Actual Production History (APH) Reviews

When conducting an APH review, the Company is required to review and verify the records used to establish the APH for an eligible crop insurance contract in accordance with the eligible crop insurance contract’s underwriting procedures. APH reviews required under Appendix IV shall be conducted as follows:

(A) At a minimum, the Company shall verify information or data certified by the policyholder to determine whether the information or data was timely submitted and accurate. If a discrepancy in the certified actual yield is discovered during the review process and the discrepancy is within tolerance, corrections may be made for the current crop year at the discretion of the Company, but are required for the following crop year(s). If the discrepancy exceeds the tolerance, corrections must be made for the current crop year and the following crop year(s).

(i) An APH yield tolerance will be allowed for an actual yield (the actual yield as defined by the Common Crop Insurance Policy) within a database that was certified for an individual crop year. Tolerances are stated in terms of 15 DB04/763432.0030/2554246.1 WP08 CLEAN VERSION OF 2011 SRA—Appendix IV (SECOND DRAFT): 02-23-10

percent difference. The percent difference is calculated by dividing the difference of the two yields (the actual yield certified by the policy holder and the actual yield determined to be correct by the reviewer) by the actual yield determined to be correct by the reviewer. The APH yield tolerance amount will be five percent for Barley, Canola/Rapeseed, Corn, Cotton, ELS Cotton, Flax, Grain Sorghum, Oats, Peanuts, Popcorn, Rice, Rye, Safflower, Soybeans, Sunflower Seed, and Wheat. The APH yield tolerance amount will be two percent for all other crops.

(B) For the first crop year in which a crop is insured under an eligible crop insurance contract, review all years of records used to support the actual yield(s) certified by the policyholder.

(C) For continuous eligible crop insurance contracts, review all records used to support the actual yield(s) certified by the policyholder for the most recent crop year. Based on this review:

;

(i) If no errors or omissions are identified which would result in the tolerance for any actual yield being exceeded, an APH review of additional crop years will not be required.

(ii) If errors or omissions are identified which would result in the tolerance for any actual yield being exceeded, a complete review of all records required to be available for review and verification (records supporting the actual yields certified for the three most recent crop years) will be required.

(iii) Any actual yield established by a claim for indemnity or previous APH review, by either the AIP currently servicing the contract or a previous AIP that had serviced the contract, may be considered correct at the discretion of the AIP currently servicing the contract.

[Note – The above recommended language clarifies the APH review procedures, incorporates a reasonable tolerance, mitigates the process and removes all APH review requirements from external procedures and places them into this appendix for quality control purposes. Type 57 record requirements may need modification to facilitate item (iii) above.]

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IV. REPORTING SUSPECTED MISREPRESENTATION, FRAUD, WASTE, AND ABUSE

(a) In all cases where the Company or its affiliates reasonably suspects misrepresentation, fraud, waste, or abuse, the Company shall immediately report such cases to FCIC. FCIC shall make a determination and provide, within 90 calendar days after receiving the report, a written response that describes the intended actions of FCIC.

(1) The Company and FCIC shall take coordinated action in any case where misrepresentation, fraud, waste, or abuse is alleged. The Company will not take any action until the Company and FCIC have agreed to the appropriate course of action.

(2) In accordance with subparagraph (1), the Company shall take any action required by FCIC and, upon completion, forward all information and documents in the possession of the Company regarding the required action to the appropriate FCIC compliance office for the area; and

(3) If the Company does not find adequate evidence to support a conclusion that a misrepresentation, fraud waste or abuse has occurred, maintain all documents, in accordance with section IV.(g) of the Agreement, relating to the suspected misrepresentation, fraud, waste, or abuse, and any actions taken.

(b) If FCIC fails to respond as required by subparagraph (a) to a report provided by the Company, the Company may request the Farm Service Agency to assist the Company in an inquiry into the alleged program fraud, waste, or abuse.

(c) FCIC will notify the Company in cases where a complaint or concern has been forwarded to FCIC from a source external to the Company and, as determined by FCIC, action by the Company may be necessary. This includes OIG Hotline complaints or cases where FSA referrals have been forwarded to FCIC in accordance with the FSA/RMA 4-RM procedures. In such cases the Company will not take any action until the Company and FCIC have agreed to the appropriate course of action.

[Note –Two aspects of section 515(d) of the Act, (d)(4) on FSA referrals and (d)(5) on required Corporation response have been incorporated. Item (c) is an addition to stipulate procedures for addressing instances from external sources such as FSA referrals and OIG complaints.]

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APPENDIX IV

I. GENERAL QUALITY CONTROL PLAN REPORTING REQUIREMENTS

(a) The Company shall annually provide an explanation of its Quality Control Plan with its Plan of Operations. The explanation shall provide a detailed description that demonstrates that its Quality Control Plan meets or exceeds the following internal control elements:

(1) Control Environment. The control environment sets the tone of an organization, influencing the control consciousness of its people. Factors include the integrity; ethical values and competence of the entity’s people; management’s philosophy and operating style; the way management assigns authority and responsibility, and organizes and develops its people; and the attention and direction provided by the Company’s management.

(2) Risk Assessment. A precondition to risk assessment is establishment of Formatted: Bullets and Numbering objectives that shall be identified in the Quality Control plan. Risk assessment is the identification and analysis of relevant risks to achieve the stated objectives of the Company’s Quality Control plan, and form the basis for determining how the Company will manage risk to the crop insurance program.

(3) Control Activities. The Company shall identify the way the policies and procedures that help ensure management directives are carried out. These controls help ensure that necessary actions are taken to address risks and limit non-compliance. They include a range of activities as diverse as approvals, authorizations, verification, reconciliation, reviews of operating performance, security of assets and segregation of duties. The Company plan will also include under Control Activities all the required reviews and obligations required by Appendix IV.

(4) Information and Communication. The Company’s plan shall include how pertinent information is identified, captured and communicated in a form and timeframe that enables the Company and its affiliates to carry out their responsibilities. Include an explanation of standard reports containing operational, financial and compliance related information that make it possible to run and control the business.

(5) Monitoring. The Company shall articulate the process used to monitor their Quality Control Plan. The process will assess the quality of the Company’s performance during each reinsurance year. This is accomplished through ongoing monitoring activities, separate evaluations, or a combination of the two. The process will also identify how quality control deficiencies are reported up through the chain of command and

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how the most serious matters are reported to the Company’s top management.

(b) The Company’s quality controls will be evaluated through compliance reviews to Deleted: Approval of the Quality Control Plan in the Plan of Operations is not a ensure compliance with this Agreement. FCIC will confer with the Company’s determination of the sufficiency of the official in charge of quality control concerning any identified deficiency and Company’s quality controls. appropriate recourse. Any deficiency in the Company’s quality controls that has Deleted: sufficiency of the been substantiated by FCIC will be addressed by the Company’s Quality Control Deleted: determined Plan for the reinsurance year following the reinsurance year in which the Deleted: that evaluate the effectiveness of the Company is notified of such deficiency. Quality Control Plan

[Note – Attempt is to acknowledge the difference between an accepted quality Formatted: Font: Bold control plan and effective quality control. Even though a plan is submitted and Formatted: Indent: Left: 0.5", No bullets or accepted does not mean all appendix IV requirements will be adhered to. The numbering, Tab stops: Not at 1" Company should be evaluated as appropriate in a manner that recognizes the difference between a plan weakness (for example, inadequate follow-up training which should be addressed point forward) versus outright failure of a requirement (for example, did not do a required $100K review which should be addressed under the then current Agreement).] Formatted: Font: Bold

II. TRAINING OF AGENTS, LOSS ADJUSTERS, AND OTHER PERSONNEL

(a) GENERAL COMPANY RESPONSIBILITIES

(1) The Company is responsible for establishing a “Training and Performance Evaluation Plan” (TPEP) for all persons subject to the requirements of section VIII. of Appendix I. The TPEP shall be submitted to FCIC in the Company’s Plan of Operations, in accordance with Appendix II. Nothing in these requirements precludes the Company from providing training that exceeds these requirements.

(2) The TPEP shall: Formatted: Bullets and Numbering

(A) Include industry accepted minimum standards for: Deleted: State the Deleted: acceptable (i) Test proficiency; and

(ii) Satisfactory work performance. Formatted: Bullets and Numbering

(B) Describe the procedures and control measures used to monitor and evaluate an individual’s work performance against the minimum standards under subparagraph (a)(2)(A);

(C) Describe the additional training and work monitoring required by Formatted: Bullets and Numbering the Company of any individual who fails to meet the minimum standards specified in subparagraph (a)(2)(A);

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(D) Describe the training curriculum developed from subsections (b) and (c);

(E) Describe the training needs of those individuals subject to the requirements of section VIII. of Appendix I with respect to specific crops, areas, and plans of insurance serviced by such individuals;

(F) List the name of the person or persons responsible for the TPEP Formatted: Bullets and Numbering process identified in the Exhibit IV.(e) of the Company’s Plan of Operations, in accordance with Appendix II;

(G) Provide a timeline for training all persons identified in paragraph (a)(1) prior to the time the work is to be performed;

(H) Describe the procedure established by the Company to maintain, retain, and provide to FCIC upon request:

(i) Documentation showing the results of actions taken to track and evaluate historical performance with respect subparagraph (a)(2)(A) for all persons subject to the requirements of section VIII. of Appendix I; and

(ii) Records of all corrective, follow-up, or remedial actions Formatted: Bullets and Numbering taken with respect to any person identified in clause (i) that does not meet the standards specified in subparagraph (a)(2)(A).

(I) Contain a provision to conduct such other training that may be required by FCIC.

(3) An annual Training and Performance Evaluation Report (TPER) shall be submitted with the Company’s Plan of Operations, in accordance with Appendix II. The annual TPER shall provide:

(A) An evaluation of each agent and loss adjuster comparing their performance to the standard specified in subparagraph (a)(2)(A). Deleted: , including a comparison against other agents and loss adjusters in Such performance evaluation shall include a review of the number the area and type of any errors or omissions related to the compliance with Deleted: the loss ratios associated with obligations under the Agreement; and such agent and loss adjuster and

(B) A report of any remedial actions taken by the Company to correct Formatted: Bullets and Numbering any error or omission or ensure compliance with the Agreement. Deleted: , improve loss performance,

[Note – In accordance with 7 U.S.C. 1515(f)(1)-(2) of the Act FCIC is required Formatted: Indent: Left: 1", No bullets or to both identify and review any agent with loss claims equal to or greater numbering than 150 percent of the mean for other agents in the area and any adjuster

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with accepted or denied claims equal to or greater than 150 percent of other adjusters in the area, as determined by FCIC. Requiring AIPs to compare loss ratios would result an incomplete analysis since AIPs would not have the ability to compare loss ratios on an industry wide basis. Under 7 U.S.C. 1515(f)(3), AIPs are only required to annually review the general performance of agents and adjusters.] Formatted: Font: Bold

(b) SALES TRAINING CURRICULUM AND REQUIREMENTS

(1) The sales training curriculum developed by the Company shall include those eligible crop insurance contracts the Company will be selling or servicing in the States identified in the Company’s Plan of Operations, in accordance with Appendix II, and include at a minimum (for new agents and employees performing functions relating to sales or service,

comprehensive information on all of the following, and for experienced agents and employees performing functions relating to sales or service, comprehensive information on updates or changes in the following), sufficient information to make such persons proficient in: (A) The meaning of the terms and conditions of the Common Crop Insurance Policy, Basic Provisions and applicable Crop Provisions, published at 7 C.F.R. part 457, and the other available plans of insurance such as the Group Risk Plan published at 7 C.F.R. part 407, the revenue insurance plans, pilot programs, and other plans of insurance found on FCIC’s website at www.rma.usda.gov, and any changes thereto;

(B) All applicable endorsements, Special Provisions and options and Formatted: Bullets and Numbering any changes thereto;

(C) The benefits and differences between the applicable plans of insurance specified in subparagraph (A) and their suitability to farming conditions and operations in the relevant area;

(D) The actuarial documents and their use;

(E) The procedures applicable to the sales and service of eligible crop insurance contracts and any changes thereto;

(F) How to properly fill out and submit all applicable forms, documents, notices and reports;

(G) The requirements under applicable Federal civil rights statutes and methods to encourage program participation, including participation of limited resource, women, minority, and underserved producers or in underserved areas;

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(H) How to recognize anomalies in reported information and common indicators of misrepresentation, fraud, waste or abuse, the process to report such to the Company, and appropriate actions to be taken when anomalies or evidence of misrepresentation, fraud, waste or abuse exist;

(I) Compliance with applicable laws and regulations governing business conduct and ethics, including rebating prohibitions, conflicts of interest, and controlled business, etc.; and

(J) Any other requirements as may be established by FCIC.

(2) The Company shall ensure the following: Deleted: before it permits persons identified in subsection (b)(1) to sell or service any eligible crop insurance contract (A) Any new agent or other person who solicits or otherwise promotes crop insurance sales on behalf of the Company shall participate in a structured training program of at least 12 hours on all of the items listed in paragraph (1) before selling or servicing any eligible crop insurance contract.

(B) Any experienced agent shall annually complete at least 3 hours of Formatted: Bullets and Numbering structured training, on updates or changes specifically related to the items listed in paragraph (1), or that are identified by FCIC or the Company where errors or omissions were identified during quality control reviews or processing of the sales related documents.

(C) All new agents shall pass a basic competency test before they can sell or service an eligible crop insurance contract (all test results shall be maintained by each Company in accordance with section IV.(g) of the Agreement). Basic competency tests shall specifically relate to the items listed in paragraph (1) and determine the proficiency of the person who completed the required training. Additionally, the Company shall review the test results and document follow-up training for any deficiencies identified.

[Note – The above modifications clarify the distinction between new Formatted: Font: 11.5 pt, Bold agents and experienced agents. New agents should be trained and Formatted: Font: 11.5 pt, Bold tested before selling policies. Experienced agents simply need to Formatted: Indent: Left: 1.5" complete their training on an annual basis and their testing every three years. Minimum training hour requirements need to remain in Formatted: Font: 11.5 pt, Bold the SRA in order to ensure a degree of uniformity among the Formatted: Font: 11.5 pt, Bold Companies and satisfy some state insurance department concerns]. Formatted: Font: 11.5 pt, Bold (D) All agents shall retake and pass the basic competency test (in Formatted: Font: 11.5 pt, Bold accordance with the standard established in subparagraph Formatted: Font: Bold (a)(2)(A)(i)) every three years. Formatted: Bullets and Numbering 5 DB04/763432.0030/2554246.1 WP08 RED-LINED VERSION OF 2011 SRA—Appendix IV (SECOND DRAFT): 02-23-10

(E) If the agent was not employed by or did not contract with the Company in the previous year(s), the Company shall obtain, and make available upon request, documentation that the agent has passed the basic competency test within the past 3 years with another AIP.

(F) Proficiency is established by passing a written test meeting the standards of the TPEP, and maintaining satisfactory work performance during the respective crop year measured against the minimum standards established under subparagraph (a)(2)(A).

(G) In addition, the agent is considered to maintain satisfactory work performance if the results of reviews to respond to producer complaints, State Departments of Insurance or FCIC inquiries, or other quality control reviews identify no material errors.

[Note - At the time this certification would be made, little required training Deleted: Before any sales or service commences for the reinsurance year, the will have been performed for the upcoming reinsurance year. There are Company shall provide a certification to FCIC multiple items impacting training that may be unknown, such as changes to it is in compliance with all of the provisions of the CIH, the LAM, and policy provisions. For experienced agents, servicing this subsection.¶ of policies may be continuous throughout the year. As such, it is impractical Formatted: Indent: Left: 1", No bullets or to require this certification in advance of a reinsurance year.] numbering Formatted: Font: Bold (c) LOSS ADJUSTMENT TRAINING CURRICULUM AND REQUIREMENTS

(1) The loss adjustment training curriculum developed by the Company shall include those eligible crop insurance contracts which the Company will be selling or servicing in the State, as identified by the Company in its Plan of Operations, in accordance with Appendix II, and include at a minimum (for new loss adjusters, or employees performing functions related to loss adjustment, all of the following and for experienced loss adjusters or employees performing functions related to loss adjustment, updates and changes), sufficient information to make such persons proficient in:

(A) The items listed in subsections (b)(1)(A), (B), (C), (D), (F), (H), (I), and (J);

(B) The procedures applicable to loss adjustment of eligible crop Formatted: Bullets and Numbering insurance contracts and any changes thereto;

(C) How to properly verify the accuracy of the information contained on applicable forms, documents, notices and reports;

(D) How to properly determine the amount of production to be used for the purposes of determining losses;

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(E) The requirements under applicable Federal civil rights statutes; and

(F) Any other requirements as may be established by FCIC.

(2) The Company shall ensure the following: Deleted: before it permits persons identified in subsection (c)(1)to adjust or sign any claim for any eligible crop (A) Any new loss adjuster shall participate in a structured training insurance contract program of at least 60 hours (which includes at least 24 hours of classroom training) on all of the items listed in paragraph (1) before signing any claim under an eligible crop insurance contract.

(B) Any experienced loss adjuster shall annually complete at least 16 Formatted: Bullets and Numbering hours of structured training (which includes at least 8 hours of classroom training) on updates or changes specifically related to the areas listed in paragraph (1) or that are identified by FCIC or the Company as errors or omissions discovered during quality control reviews or processing of the loss related documents.

(C) All new loss adjusters shall pass a basic competency test (all test results shall be maintained by each Company in accordance with section IV.(g) of the Agreement) before signing any claim under an eligible crop insurance contract. Basic competency tests shall specifically relate to the areas listed in paragraph (1) and determine the proficiency of the persons who completed the required training to accurately and correctly determine the amount of the loss and verify applicable information. Additionally, the Company shall review the test results and document follow-up training initiatives for any deficiency.

[Note - The above modifications clarify the distinction between new Formatted: Indent: Left: 1.5", No bullets or adjusters and experienced adjusters. New adjusters should be trained numbering and tested before signing claims. Experienced adjusters simply need to complete their training on an annual basis and their testing every three years. Minimum training hour requirements need to remain in the SRA in order to ensure a degree of uniformity among the Companies and satisfy some state insurance department concerns.] Formatted: Font: Bold

(D) All loss adjusters shall retake and pass the competency test every three years.

(E) If the loss adjuster was not employed by or did not contract with Formatted: Bullets and Numbering the Company in the previous year(s), the Company shall obtain, and make available upon request, documentation that the loss adjuster has passed the basic competency test within the past 3 years with another AIP.

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(F) Proficiency is established by passing a written test meeting the standards of the TPEP, and maintaining satisfactory work performance during the respective crop year measured against the minimum standards established under subparagraph (a)(2)(A).

(G) In addition, the loss adjuster is considered to maintain satisfactory work performance if the results of reviews to respond to producer complaints, State Departments of Insurance or FCIC inquiries, or other quality control reviews identify no material errors.

[Note - At the time this certification would be made, there are multiple items Deleted: Before any loss adjustment activities commence for the reinsurance year, that could impact training that may be unknown, such as changes to the CIH, the Company shall provide a certification to the LAM, and policy provisions. As such, it is impractical to require this FCIC it is in compliance with all of the certification in advance of a reinsurance year.] provisions of this subsection. Formatted: Indent: Left: 1", No bullets or III. QUALITY CONTROL GUIDELINES numbering Deleted: ¶ (a) GENERAL COMPANY RESPONSIBILITIES Formatted: Font: Bold

The Company is responsible for: Deleted: In general, t

(1) Establishing a system of internal controls to meet all FCIC quality control guidelines included in this Appendix.

(2) In addition to the requirements of section I.(a), developing and providing a Formatted: Bullets and Numbering quality control plan detailing how the Company will carry out its quality Deleted: I control program. This quality control plan will be submitted with the Plan Deleted: their of Operations, in accordance with Appendix II and shall include:

(A) The name and title of an official in charge of quality control and who is independent of sales and claims;

[Note – The above has been deleted because individuals performing Deleted: The names and titles of the persons who will conduct the quality control Quality Control Reviews in any given year will vary for most reviews; Companies depending on workload issues. Requiring a complete Formatted: Indent: Left: 1.5", No bullets or separate set of personnel solely for performing reviews is impractical.] numbering Deleted: ¶ (B) The types of reviews that will be conducted and the time period when such eligible crop insurance contracts will be selected for Formatted: Font: Bold each review; and Formatted: Bullets and Numbering

(C) A complete description of the process to be followed by the reviewers for conducting each of the reviews.

(3) Conducting all quality control reviews using objective and unbiased persons, who were not involved in the sales, supervision of sales, or establishment of the guarantee and did not participate in adjusting the loss

8 DB04/763432.0030/2554246.1 WP08 RED-LINED VERSION OF 2011 SRA—Appendix IV (SECOND DRAFT): 02-23-10

for the eligible crop insurance contract reviewed. Quality control reviews shall be independent.

[Note – Above requirements (2)(A) and (3) should address much of RMA’s Formatted: Indent: Left: 1", No bullets or segregation of duty concerns with respect to the performance of quality numbering control reviews.] Formatted: Font: Bold

(4) Verifying that: Deleted: Conducting an inspection. Formatted: Bullets and Numbering (A) The application, production report, acreage report, notice of loss or Formatted: Heading 4 claim, or other relevant document information for the applicable review category was provided timely;

(B) The policy documents, including actuarial documents, have been properly used;

(C) The agent or loss adjuster has complied with procedures;

(D) The information provided by the policyholder, agent, or loss adjuster is true and accurate through appropriate means which may include, but are not limited to, automated processing system edits designed to confirm specific procedural requirements, interviews, APH reviews, field inspections or file reviews and obtaining production or other records from third parties; and

(E) The crop insurance contract constitutes an eligible crop insurance Formatted: Heading 4 contract.

[Note – Inspection has been deleted as a definition. However, the verification Formatted: Heading 4, Indent: Left: 1" requirements have been reincorporated under item (4) above. This placement has broader applicability. These general requirements, when used in conjunction with the recommended definitions for the various review categories plus the added review category requirement detail, will provide a clearer and more specific description of the various review procedures.] Formatted: Font: Bold

(5) Implementing procedures for timely detection and reporting of suspected misrepresentation, fraud, waste, or abuse by policyholders, employees or Deleted: and affiliates or within the Federal crop insurance program.

(6) Notifying FCIC of suspected misrepresentation, fraud, waste or abuse in Formatted: Bullets and Numbering accordance with section IV of this Appendix and assisting FCIC in subsequent investigations.

(7) Implementing administrative procedures to resolve and correct errors and omissions identified during a review. Deleted: n Deleted: inspection

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(8) Correcting, in accordance with procedures, any errors or omissions identified during any review. Deleted: inspection

(9) Maintaining, in accordance with section IV.(g) of the Agreement, all documentation related to any review required by this Appendix. Deleted: inspection

(10) Establishing a process to respond to complaints by policyholders, the public, or state insurance departments, or referred to the Company by FCIC, documenting the complaint and actions taken by the Company in response, and providing such documentation to FCIC upon request. Deleted: , or immediately if the complaint is substantiated. (11) Following FCIC approved procedures related to companion eligible crop Deleted: Ensuring that companion eligible crop insurance contracts in force for other insurance contracts in force for other persons sharing in the crop. persons sharing in the crop are serviced consistently. Any Company procedure for (12) Taking such actions as are reasonable and appropriate to correct any non- ensuring such consistency shall include a mechanism forseeking an interpretation of compliance with the Agreement. policy or procedure from FCIC in the event that the Company and another AIP disagree (13) Preparing and providing to FCIC within 30 business days of completing on the proper service. each review, an Electronic Quality Control Review Record (EQCRR or Formatted: Bullets and Numbering the Appendix III Type 57 Record) detailing the results of the review that Deleted: 10 will, at a minimum: Deleted: in accordance with Appendix III.

(A) For eligible crop insurance contracts which did not have errors or Formatted: Heading 4 omissions detected exceeding allowable tolerances, identify by contract number and crop, the name and title of the person who conducted the review, the date the review was completed, and the type of review conducted.

(B) For eligible crop insurance contracts which had errors or omissions exceeding allowable tolerances, identify by contract number and crop, the name and title of the person who conducted the review, the date the review was completed and the type of review conducted, the type of error or omission detected, the corrective action taken and if applicable, the monetary effect or the effect on the APH.

(C) Include other relevant quality control information that may be required as determined by consensus of the policy review work group.

(14) Retaining all documents, in accordance with section IV.(g) of the Agreement, obtained in the course of the reviews conducted and all forms completed by the quality control reviewer and providing such documents to FCIC upon request. All review documentation is considered part of the policyholder file.

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[Note – Type 57 reporting requirements should instead be sufficiently structured Deleted: Submit an annual Quality Control Report, signed and certified by Company’s Chief such that the annual report and certification is redundant and unnecessary. Type 57 Financial Officer by April 30 following the record content, purpose and procedure will still need to be addressed by Industry reinsurance year, detailing the overall results of compliance and quality control personnel.] the Company’s reviews and any corrective actions taken, and confirming the Company has performed sufficient reviews to provide a reasonable assurance that the requirements of the Agreement have been met. (b) FCIC RESPONSIBILITIES Formatted: Indent: Left: 0.5", No bullets or numbering (1) FCIC will evaluate the Company's submitted Electronic Quality Control Deleted: ¶ Review Records (EQCRR or the Appendix III Type 57 Record) to assess Formatted: Bullets and Numbering its compliance with this Appendix. Formatted: Heading 3, Tab stops: Not at 0.88" (2) FCIC will conduct periodic compliance evaluations of the Company's quality control programs to determine compliance with the requirements of this Appendix, assess the effectiveness of the systems, and the accuracy of the Company's conclusions with regard to the quality control reviews conducted under this Appendix. These evaluations will be applied Formatted: Not Highlight consistently and uniformly across all AIPs. Formatted: Not Highlight

(3) FCIC will conduct periodic evaluations or reviews of the operations of the Company or its affiliates relating to the Federal crop insurance program. These evaluations or reviews will be applied consistently and uniformly across all AIPs and will serve as the basis for determining any program Formatted: Not Highlight error rate.

(4) In accordance with Section 515 [7 U.S.C. 1515] (a)(2) of the Act, FCIC shall work actively with approved insurance providers to address program compliance and integrity issues as such issues develop.

[Note – the above four bullets detail what RMA is currently striving to do and Formatted: Heading 3, Indent: Left: 1", Tab tie into other aspects of the Appendix IV recommendations. If the existence of stops: Not at 0.88" a specific subsection titled “FCIC Responsibilities,” is objectionable, the intent of the four bullets could be appropriately placed within other sections of this appendix.] Formatted: Font: Bold

(c) REVIEW CATEGORIES AND REQUIREMENTS Formatted: Bullets and Numbering

The Company is required to identify and conduct the following reviews on a reinsurance-year basis unless otherwise specified herein and report the results to FCIC via the Type 57 Record (EQCRR) in accordance with Appendix III. These reviews are intended to protect program integrity and ensure that the Company’s internal controls are in place, operational, and provide reasonable assurance that the liability and indemnities are properly established in accordance with FCIC approved procedures. If any review meets the criteria for one or more review categories, the review will count toward the applicable minimum review requirement for such review category. 11 DB04/763432.0030/2554246.1 WP08 RED-LINED VERSION OF 2011 SRA—Appendix IV (SECOND DRAFT): 02-23-10

(1) Program Reviews. Formatted: Bullets and Numbering

For program reviews, data mining will be utilized in the identification of Formatted: Indent: Left: 1.5", No bullets or numbering crop insurance contracts which, due to anomalies or other program aspects, merit monitoring or review by the Company. Program reviews to Formatted: Font: Not Bold be conducted during the current reinsurance year will not exceed the Formatted: Font: Not Bold greater of 110 percent of the Company’s previous years’ program reviews Formatted: Font: Not Bold or three percent of the total paid indemnities on a crop/county basis for the Formatted: Font: Not Bold current reinsurance year, unless FCIC provides notice that additional Formatted: Font: Not Bold reviews are required in order to address specific program integrity Formatted: Heading 4 concerns and these additional reviews are agreed upon by consensus of the Formatted: Bullets and Numbering policy review work group. Deleted: an inspection (A) FCIC Selected Data Mining Reviews. The Company shall conduct Deleted: , reviews or monitoring programs of eligible crop insurance Deleted: not to exceed three percent of indemnified eligible crop insurance contracts, entities, agents, loss adjusters, or affiliates for which contracts for the reinsurance year, unless anomalies have been identified by FCIC as may be determined FCIC provides notice that additional necessary by FCIC to protect program integrity. This review inspections are required to address specific program integrity concerns. category will also include instances where, in accordance with the FSA/RMA 4-RM procedures, the Company is required by FCIC to Formatted: Heading 4, Indent: Left: 1.5" verify information certified by a policy holder in order to reconcile Formatted: Superscript data as identified by a Common Information Management System Formatted: Font: Bold (CIMS) Discovery Report. Deleted: Individual Formatted: Heading 4 [Note – subparagraph (A) above preserves FCIC’s ability, under their Formatted: Bullets and Numbering 2nd draft categories of data mining and individual policy reviews, to do or require what FCIC believes, at their discretion, to be necessary and Formatted: Not Highlight appropriate. It is also an appropriate place to reference data Deleted: The Company shall conduct inspections or monitoring programs of reconciliation which currently only resides in the Act and the 4-RM.] eligible crop insurance contracts, entities, agents, loss adjusters, or affiliates identified by FCIC as may be determined (B) Data Mining Policy Reviews. These reviews concern general necessary by FCIC to protect program program applicability and will be defined and agreed upon by the integrity. If any review meets the criteria... [1] policy review work group. Specific contracts subject to monitor or Formatted: Font: Not Bold review will be identified by data mining. The Company shall Formatted: Font: Not Bold conduct reviews or monitoring programs of eligible crop insurance Formatted: Font: Not Bold contracts identified through this process. The results of current or past reviews will be analyzed by the policy review work group for Formatted: Font: Not Bold identification of program vulnerabilities or weakness and Formatted: Font: Not Bold recommended resolution (i.e. policy change, procedural change, Formatted: Font: Not Bold training, etc.). Quality control efficiencies will be gained through Formatted: Font: Not Bold elimination of redundancies and by providing a more fluid and Formatted: Font: Not Bold flexible quality control program as it moves through time. For Formatted: Font: Not Bold example, if a review series produces no meaningful result, it may be terminated or replaced. As new policies or concepts are Formatted: Font: Not Bold introduced into the program, concerns may be identified and Formatted: Font: Not Bold responded to faster and more appropriately. Formatted: Font: Not Bold Formatted: Highlight 12 DB04/763432.0030/2554246.1 WP08 RED-LINED VERSION OF 2011 SRA—Appendix IV (SECOND DRAFT): 02-23-10

(i) Data mining policy reviews may include, but are not Formatted: Bullets and Numbering limited to situations involving detection of disparate performance of agents or loss adjusters, simplified claims, APH tolerance, crop insurance contracts where the same adjuster has been involved in three consecutive claim Formatted: Heading 5, Indent: Left: 1.5" years, area or group based plans of insurance (such as Deleted: Operational Reviews. These reviews GRP/GRIP, rainfall or vegetation index policies, or are intended to ensure that the Company’s internal apiculture), biotechnology endorsements, 508(h) or pilot controls are in place, operational, and providereasonable assurance that the liability and programs, or any area of concern not addressed by the indemnities are properly established in accordance other review categories identified in this Appendix. with procedures. Formatted: Indent: Left: 0.5" (ii) Appropriate timing for receipt of identified reviews from Deleted: ¶ FCIC will be determined, and Formatted: Indent: Left: 1" (iii) Based on the identified concern, appropriate review criteria Deleted: <#>APH Tolerance Reviews¶ <#>Review Selection Criteria: The or procedures will be determined (e.g. APH review, field Company shall identify a minimum of ten inspection, file review, growing season inspection, or pre- percent of insured units, unless otherwise specified by FCIC, for Category B and C (as harvest inspection). identified in the Crop Insurance Handbook) eligible crop insurance contracts having a [Note – subparagraph (B) above, Data Mining Policy Reviews, newly certified yield equal to or greater than 150 percent of the prior year’s approved incorporates a proactive relationship in accordance with Section 515 APH yield, if the database contains three or [7 U.S.C. 1515] (a)(2) of the Act. As here described, data mining may more years of actual records for the crop year certified.¶ be used as a vehicle for validation of most any program (current or <#>Review Procedures. The Company shall future) vulnerability or weakness.] conduct an inspection of:¶ <#>The units identified under clause (i) and all other units of the insured crop insured [Note – The operational review category is unnecessary when specific review under the same eligible crop insurance categories are better defined. The stated purpose has been more appropriately contract as the unit specified in clause (i);¶ <#>New producer status, if applicable; and¶ incorporated under (c) above.] <#>Transitional yields used.¶ <#> If acceptable records are not provided, [Note – APH tolerance reviews have been placed under the Program Review the Company shall:¶ <#>Recalculate the yield for each unit based category of Data Mining Policy Reviews above, to be addressed via data on the acceptable records provided by the mining.] policyholder or obtained from other sources; and¶ <#>Revise production reports when the (2) Conflict of Interest Reviews: In accordance with the conflict of interest calculated yield varies by more than disclosure requirements contained in section VI(e) of Appendix I, the allowable tolerances (Approved APH tolerances and the procedures for correcting Company shall conduct conflict of interest reviews based on the following APH errors and erroneous yield criteria: certifications are contained in procedures).¶ Formatted: Heading 3 [Note – The procedure in (A) and (B) below captures the full extent of Formatted: Bullets and Numbering when mandatory reviews are required and when discretionary Deleted: The Company shall conduct an reviews are applicable in accordance with MGR-08-001. There is no inspection for all eligible crop insurance need to reference the MGR. Clarity has been added based on policy contracts for which a conflict of interest has been disclosed or otherwise been identified type (per added definitions) with respect to what must be done when and is required under MGR-08-001 or any conducting the review.] successor bulletin or procedure. Formatted: Heading 3, Indent: Left: 1.5" (A) A mandatory conflict of interest review will consist of a file Formatted: Font: Bold review for area or group based plans of insurance and a field Formatted: Bullets and Numbering 13 DB04/763432.0030/2554246.1 WP08 RED-LINED VERSION OF 2011 SRA—Appendix IV (SECOND DRAFT): 02-23-10

inspection, file review, and as applicable, an APH review for yield based or non-yield based plans of insurance. A conflict of interest review is mandatory when the person making a disclosure:

(i) Has a share in a crop insured under any eligible crop Formatted: Heading 5 insurance contract insured by the Company, or

(ii) Has a relative with a substantial beneficial interest in any insurance contract insured by the Company.

(B) An AIP discretionary review may be conducted on any disclosure category not included in (A)(i) or (ii) above as determined by the Company.

[Note – Consecutive loss adjuster reviews have been placed under the Program Review category of Data Mining Policy Reviews above, to be addressed via data mining.]

(3) $100,000 Indemnity Reviews. Deleted: <#>Consecutive Loss Adjuster Reviews. The Company shall conduct an inspection of at least:¶ (A) This review will consist of: <#>15 percent of the eligible crop insurance contracts where the same adjuster has been involved in three consecutive claim years for (i) A file review for an area or group based plan of insurance; their Company; and¶ or <#>15 percent of any additional eligible crop insurance contracts, identified by FCIC, where the same adjuster has been (ii) A field inspection and file review for a non-yield based involved in three consecutive claim years plan of insurance including a review of the previous year’s between multiple AIPs.¶ certified revenue for plans 61 and 63 (AGR and AGR- Formatted: Heading 3 Lite); or Formatted: Bullets and Numbering Formatted: Bullets and Numbering (iii) A field inspection, file review and APH review for a yield based plan of insurance including a review of the previous Formatted: Heading 5 year’s certified revenue for plan 47 (ARH).

(B) The Company shall identify and conduct a $100,000 indemnity Deleted: n review on any eligible crop insurance contract where: Deleted: inspection Deleted: with an indemnity of (i) Any single indemnity exceeds $100,000 due to prevented $100,000 or more, planting and/or production losses for a yield based plan of insurance or any indemnity exceeds $100,000 for an area or group based plan of insurance loss;

(ii) Any aggregate indemnity, including claims that were Formatted: Bullets and Numbering closed, and subsequent claims exceed $100,000 due to prevented planting and/or production losses for a yield based plan of insurance; or

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(iii) The indemnity exceeds $100,000 on a non-yield based Deleted: n Adjusted Gross Revenue, plan of insurance or the revenue loss exceeds $100,000 on or other revenue plan of insurance a yield based plan of insurance. Formatted: Indent: Left: 1.5", No bullets or numbering [Note – It is more logical to address prevented planting as a separate Formatted: Font: Bold category and view production and/or revenue as cumulative. Formatted: Heading 3 However, the above retains RMA’s desire to keep prevented planting Formatted: Bullets and Numbering and production cumulative and separate from revenue. Recommended plan of insurance and review definitions have been Formatted: Heading 3, Indent: Left: 1" incorporated for clarity.] Formatted: Heading 3 Formatted: Font: Bold (4) AIP Discretionary Reviews. As determined by the AIP, these reviews may Deleted: <#>Biotechnology Endorsement include, but are not limited to an APH review, a conflict of interest review, (BE) Reviews.¶ <#>The Company shall perform a spot a field inspection, a file review, a growing season inspection, or a pre- check on the following:¶ harvest inspection. <#>A random selection of two and one-half percent of all eligible crop insurance contracts qualifying for the BE premium rate [Note – AIP discretionary reviews are a valuable program integrity reduction that have a total liability for all component that need to be recognized.] insured corn under the eligible crop insurance contract of less than $500,000;¶ <#>A random selection of five percent of all [Note – BE reviews, rainfall and vegetation index reviews, and acreage colony report eligible crop insurance contracts qualifying for the BE premium rate reduction that have reviews have been more appropriately placed under the Program Review category of Data a total liability for all insured corn under the Mining Policy Reviews above, to be addressed via data mining. This allows greater eligible crop insurance contract of $500,000 flexibility in designing targeted review criteria for programs that are likely to evolve over or more; and¶ <#>All eligible crop insurance contracts time.] qualifying for the BE premium rate reduction that have indemnities in excess of $100,000.¶ (5) Actual Production History (APH) Reviews <#>All eligible crop insurance contracts qualifying for the BE premium rate When conducting an APH review, the Company is required to review and reduction where the Company or RMA has reason to believe the insured is not in verify the records used to establish the APH for an eligible crop insurance compliance with the BE terms and contract in accordance with the eligible crop insurance contract’s conditions. Reviews under this requirement underwriting procedures. APH reviews required under Appendix IV shall do not count toward the random 2.5 and 5 percent required inspection.¶ ... [2] be conducted as follows: Formatted: Heading 3, Tab stops: Not at 0.88" (A) At a minimum, the Company shall verify information or data Formatted: Bullets and Numbering certified by the policyholder to determine whether the information or data was timely submitted and accurate. If a discrepancy in the Deleted: VERIFICATION certified actual yield is discovered during the review process and Formatted: Indent: Left: 1.5" the discrepancy is within tolerance, corrections may be made for Deleted: T the current crop year at the discretion of the Company, but are Deleted: and required for the following crop year(s). If the discrepancy exceeds Deleted: record the tolerance, corrections must be made for the current crop year Deleted: are and the following crop year(s). Deleted: for all eligible crop insurance contracts reviewed (i) An APH yield tolerance will be allowed for an actual yield Deleted: for which APH forms the basis (the actual yield as defined by the Common Crop for all or part of the guarantee and Insurance Policy) within a database that was certified for Formatted: Heading 4 an individual crop year. Tolerances are stated in terms of Formatted: Bullets and Numbering 15 DB04/763432.0030/2554246.1 WP08 RED-LINED VERSION OF 2011 SRA—Appendix IV (SECOND DRAFT): 02-23-10

percent difference. The percent difference is calculated by dividing the difference of the two yields (the actual yield certified by the policy holder and the actual yield determined to be correct by the reviewer) by the actual yield determined to be correct by the reviewer. The APH yield tolerance amount will be five percent for Barley, Canola/Rapeseed, Corn, Cotton, ELS Cotton, Flax, Grain Sorghum, Oats, Peanuts, Popcorn, Rice, Rye, Safflower, Soybeans, Sunflower Seed, and Wheat. The APH yield tolerance amount will be two percent for all other crops.

(B) For the first crop year in which a crop is insured under an eligible Formatted: Bullets and Numbering crop insurance contract, review all years of records used to support the actual yield(s) certified by the policyholder. Deleted: the APH to ensure the records are complete and were reported and certified as required by procedure; and (C) For continuous eligible crop insurance contracts, review all records used to support the actual yield(s) certified by the policyholder for Deleted: : the most recent crop year. Based on this review:

; Deleted: and verify the most recent year of records used to support the APH (i) If no errors or omissions are identified which would result Formatted: Indent: Left: 2", No bullets or in the tolerance for any actual yield being exceeded, an numbering APH review of additional crop years will not be required. Deleted: i Formatted: Bullets and Numbering (ii) If errors or omissions are identified which would result in Deleted: the reviewer shall review the tolerance for any actual yield being exceeded, a the remaining years of records required to be maintained by the policyholder to complete review of all records required to be available for ensure they exist and appear to support review and verification (records supporting the actual the crop, acreage, and production certified and report the results on the yields certified for the three most recent crop years) will be EQCRR; and required. Deleted: if any error is identified in the most recent year of records (iii) Any actual yield established by a claim for indemnity or certified or prior year records do not previous APH review, by either the AIP currently appear to support the crop, acreage, or production certified, servicing the contract or a previous AIP that had serviced the contract, may be considered correct at the discretion of Deleted: then the AIP currently servicing the contract. Deleted: conducted and the results reported on the EQCRR.

[Note – The above recommended language clarifies the APH review Formatted: Indent: Left: 1" procedures, incorporates a reasonable tolerance, mitigates the process and removes all APH review requirements from external procedures and places them into this appendix for quality control purposes. Type 57 record requirements may need modification to facilitate item (iii) above.] Formatted: Font: Bold

16 DB04/763432.0030/2554246.1 WP08 RED-LINED VERSION OF 2011 SRA—Appendix IV (SECOND DRAFT): 02-23-10

IV. REPORTING SUSPECTED MISREPRESENTATION, FRAUD, WASTE, AND ABUSE

(a) In all cases where the Company or its affiliates reasonably suspects Formatted: Heading 2, None, No bullets or misrepresentation, fraud, waste, or abuse, the Company shall immediately report numbering such cases to FCIC. FCIC shall make a determination and provide, within 90 Formatted: Bullets and Numbering calendar days after receiving the report, a written response that describes the Deleted: : intended actions of FCIC. Formatted: Not Highlight

(1) The Company and FCIC shall take coordinated action in any case where Deleted: Immediately report such cases to misrepresentation, fraud, waste, or abuse is alleged. The Company will not FCIC; take any action until the Company and FCIC have agreed to the Deleted: ¶ appropriate course of action. Formatted: Heading 3, Tab stops: Not at 0.88" (2) In accordance with subparagraph (1), the Company shall take any action Formatted: Bullets and Numbering required by FCIC and, upon completion, forward all information and Deleted: N documents in the possession of the Company regarding the required action Deleted: ; to the appropriate FCIC compliance office for the area; and Deleted: T (3) If the Company does not find adequate evidence to support a conclusion that a misrepresentation, fraud waste or abuse has occurred, maintain all Deleted: or documents, in accordance with section IV.(g) of the Agreement, relating to Deleted: and the suspected misrepresentation, fraud, waste, or abuse, and any actions taken.

(b) If FCIC fails to respond as required by subparagraph (a) to a report provided by Formatted: Not Highlight the Company, the Company may request the Farm Service Agency to assist the Formatted: Tab stops: 1", List tab + Not at Company in an inquiry into the alleged program fraud, waste, or abuse. 0.88" Formatted: Bullets and Numbering (c) FCIC will notify the Company in cases where a complaint or concern has been forwarded to FCIC from a source external to the Company and, as determined by FCIC, action by the Company may be necessary. This includes OIG Hotline complaints or cases where FSA referrals have been forwarded to FCIC in accordance with the FSA/RMA 4-RM procedures. In such cases the Company will not take any action until the Company and FCIC have agreed to the appropriate course of action.

[Note –Two aspects of section 515(d) of the Act, (d)(4) on FSA referrals and (d)(5) on Formatted: Indent: Left: 0.5", No bullets or required Corporation response have been incorporated. Item (c) is an addition to numbering stipulate procedures for addressing instances from external sources such as FSA referrals and OIG complaints.]

Formatted: Font: Bold

17 DB04/763432.0030/2554246.1 WP08 Page 12: [1] Deleted DavidH 3/22/2010 11:30:00 AM The Company shall conduct inspections or monitoring programs of eligible crop insurance contracts, entities, agents, loss adjusters, or affiliates identified by FCIC as may be determined necessary by FCIC to protect program integrity. If any review meets the criteria for one or more Operational Reviews, these reviews will count toward the applicable minimum review requirements for such Operational Review. (A)

Page 15: [2] Deleted DavidH 3/22/2010 2:55:00 PM Biotechnology Endorsement (BE) Reviews.

The Company shall perform a spot check on the following:

A random selection of two and one-half percent of all eligible crop insurance contracts qualifying for the BE premium rate reduction that have a total liability for all insured corn under the eligible crop insurance contract of less than $500,000;

A random selection of five percent of all eligible crop insurance contracts qualifying for the BE premium rate reduction that have a total liability for all insured corn under the eligible crop insurance contract of $500,000 or more; and

All eligible crop insurance contracts qualifying for the BE premium rate reduction that have indemnities in excess of $100,000.

All eligible crop insurance contracts qualifying for the BE premium rate reduction where the Company or RMA has reason to believe the insured is not in compliance with the BE terms and conditions. Reviews under this requirement do not count toward the random 2.5 and 5 percent required inspection.

The eligible crop insurance contracts shall be selected for spot check at specific intervals of July 15, August 1, August 15, and September 5.

All spot checks shall include verification that:

The corn seed obtained is a qualifying hybrid;

The amount of qualifying hybrids the insured obtained is sufficient to meet the planting requirements for the unit(s) identified; and

The required traits are present in selected plants by submitting plant tissue samples to an independent laboratory identified by RMA.

Rainfall Index Reviews and Vegetation Index Reviews.

The Company shall perform acreage/colony report reviews not later than 120- days after the acreage/colony reporting date for the crop, as listed in the il ii f dj i l di h year as specified in the Rainfall Index and/or Vegetation Index Common Policies.

Acreage/colony report reviews are required for:

All eligible crop insurance contract receiving indemnities for which a conflict of interest has been reported under the Agreement;

All eligible crop insurance contracts for which a written application for acreage reductions are made during the insurance year; and

Not less than a 3-percent random sample for all Rainfall Index Pasture, Rangeland, Forage and Apiculture eligible crop insurance contracts and a 3 percent random sample for all Vegetation Index Pasture, Rangeland, Forage eligible crop insurance contracts with reported acreage/colonies.

Acreage/colony report reviews shall include verification of:

Actual acres (total including insured and uninsured acres) versus insured acres;

Actual colonies versus insured colonies (colonies can be verified by FSA or other federal or state governmental reporting systems/requirements, tax records, transportation invoices, purchase agreements, bill of sales, etc.);

Insurable interest/share in the crop; and

Insurability of the insured acreage located within the county, and that such acreage was reported on or before the acreage reporting date.