General Administrative Regulations; Nonstandard Underwriting Classification System

SUMMARY: Federal Crop Insurance Corporation (FCIC) proposes to amend

subpart O of the General Administrative Regulations, effective with the

1998 (1999 for Texas and Arizona/California Citrus) and succeeding crop

years. This proposed amendment is intended to clarify the effect of the

Nonstandard Underwriting Classification System (NCS) and to ensure that

NCS is applied to all producers in a fair and consistent manner.

DATES: Written comments, data, and opinions on this proposed rule will

be accepted until close of business January 6, 1997, and will be

considered when the rule is to be made final. The comment period for

information collection under the Paperwork Reduction Act of 1995

continues through January 6, 1997.

ADDRESSES: Written comments, data, and opinions on this proposed rule

should be sent to the Chief, Product Development Branch, Federal Crop

Insurance Corporation, United States Department of Agriculture, 9435

Holmes Road, Kansas City, MO 64131. Written comments will be available

for public inspection and copying in room 0324, South Building, USDA,

14th and Independence Avenue, SW., Washington, DC, 8:15 a.m.-4:45 p.m.,

est, Monday through Friday, except holidays.

FOR FURTHER INFORMATION CONTACT: For further information, contact Bill

Smith, Supervisory Insurance Management Specialist, Research and

Development Division, Product Development Branch, FCIC, at the Kansas

City, MO address listed above, telephone (816) 926-7743.

SUPPLEMENTARY INFORMATION:

Executive Order 12866 and Departmental Regulation 1512-1

This action has been reviewed under United States Department of

Agriculture (USDA) procedures established by Executive Order 12866 and

Departmental Regulation No. 1512-1. This action constitutes a review as

to the need, currency, clarity, and effectiveness of these regulations

under those procedures. The sunset review date established for these

regulations is June 1, 2000.

This rule has been determined to be not significant for the

purposes of Executive Order 12866 and, therefore, has not been reviewed

by the Office of Management and Budget (OMB).

Paperwork Reduction Act of 1995

This rule does not contain information collection requirements that

require approval by OMB under the Paperwork Reduction Act of 1995 (44

U.S.C. chapter 35).

Unfunded Mandates Reform Act of 1995

Title II of the Unfunded Mandate Reform Act of 1995 (UMRA), Public

Law 104-4, establishes requirements for Federal agencies to assess the

effects of their regulatory actions on State, local, and tribal

governments and the private sector. Under section 202 of the UMRA, FCIC

generally must prepare a written statement, including a cost-benefit

analysis, for proposed and final rules with ``Federal mandates'' that

may result in expenditures to State, local, or tribal governments, in

the aggregate, or to the private sector, of $100 million or more in any

1 year. When such a statement is needed for a rule, section 205 of the

UMRA generally requires FCIC to identify and consider a reasonable

number of regulatory alternatives and adopt the least costly, more

cost-effective or least burdensome alternative that achieves the

objectives of the rule.

This rule contains no Federal mandates (under the regulatory

provisions of Title II of the UMRA) for State, local, and tribal

governments or the private sector. Thus, this rule is not subject to

the requirements of sections 202 and 205 of the UMRA.

Executive Order 12612

It has been determined under section 6(a) of Executive Order 12612,

Federalism, that this rule does not have sufficient Federalism

implications to warrant the preparation of a Federalism Assessment. The

policies and procedures contained in this rule will not have a

substantial direct effect on States or their political subdivisions, or

on the distribution of power and responsibilities among the various

levels of Government.

Regulatory Flexibility Act

NCS program determinations are applied equally on a county basis

and affect only a small number to insureds (approximately 1 percent of

all insureds). This regulation will not have a significant impact on a

substantial number of small entities. Therefore, this action is

determined to be exempt from the provisions of the Regulatory

Flexibility Act (5 U.S.C. 605) and no Regulatory Flexibility Analysis

was prepared.

Federal Assistance Program

This program is listed in the Catalog of Federal Domestic

Assistance under No. 10.450.

Executive Order 12372

This program is not subject to the provisions of Executive Order

12372 which require intergovernmental consultation with State and local

officials. See the Notice related to 7 CFR part 3015, subpart V,

published at 48 FR 29115, June 24, 1983.

Executive Order 12778

The Office of the General Counsel has determined that these

regulations meet the applicable standards provided in subsections 2(a)

and 2(b)(2) of Executive Order 12778. The provisions of this rule will

preempt State and local laws to the extent such State and local laws

are inconsistent herewith. The administrative appeal provisions

published at 7 CFR parts 11 and 780 must be exhausted before judicial

action may be brought.

Environmental Evaluation

This action is not expected to have any significant impact on the

quality of the human environment, health, and

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safety. Therefore, neither an Environmental Assessment nor an

Environmental Impact Statement is needed.

National Performance Review

The regulatory action is being taken as part of the National

Performance Review Program to eliminate unnecessary regulations and

improve those that remain in force.

Background

FCIC proposes to amend the General Administrative Regulations (7

CFR part 400, subpart O) effective for the 1998 (1999 for Texas and

Arizona/California Citrus) and succeeding crop years. The principal

changes to the provisions are as follows:

1. Section 400.302--Clarify the definitions of ``actively engaged

in farming'' and ``insurance experience;'' rename the term ``base

period,'' as ``NCS base period'' and clarify the definition; and add

definitions for ``earned premium'' and ``indemnified loss''.

2. Section 400.303--In paragraph (a), expand the nonstandard

classification selection criteria by adding several new criteria to

assist efforts to identify those producers whose potential adverse

impact on insurance program performance is greatest. Specify that the

minimum standards provided in this subsection may be different in a

specific county if that county's insurance experience is substantially

different from the insurance experience for which the criteria were

determined. Add paragraph (c) to describe adjustments which may be made

to insurance experience due to widespread adverse weather conditions

and other causes.

3. Section 400.305, paragraph (c)--Permit nonstandard

classifications for persons, land, and any combination thereof to be

assigned on a crop or crop practice, type, varietal, or crop option

basis.

4. Section 400.307--Clarify that nonstandard classifications for

persons, or persons on identified land will be discontinued in the case

of the person's death or if the person has discontinued farming. In

such cases, insurance experience will not change, so there is no

administrative reason to continue to annually review these listings.

FCIC will determine whether the person has ``discontinued farming'' by

determining that all present and future potential for farming has

ceased, e.g., sold all cropland and means of crop production. If the

person begins farming again, or acquires a substantial beneficial

interest in any farming operation, the nonstandard classification will

be reinstated.

5. Section 400.309, paragraph (a) is revised to change the deadline

for submitting reconsiderations from 45 days to 30 days to be

consistent with appeal regulations a 7 CFR parts 11 and 780. Paragraphs

(e) and (f) are deleted because regulations for filing an appeal are

provided in 7 CFR parts 11 and 780.

List of Subjects in 7 CFR Part 400

Crop insurance; Nonstandard Underwriting Classification System.

Accordingly, pursuant to the authority contained in the Federal

Crop Insurance Act, as amended (7 U.S.C. 1501 et seq.) the Federal Crop

Insurance Corporation proposes to amend 7 CFR part 400, subpart O,

effective for the 1998 (1999 for Texas and Arizona/California Citrus)

and succeeding crop years, as follows:

PART 400--[AMENDED]

Subpart O--Nonstandard Underwriting Classification System

1. The authority citation for 7 CFR part 400, subpart O, is revised

to read as follows:

Authority: 7 U.S.C. 1506(1), 1506(p).

2. In Sec. 400.302, remove all paragraph designations and the

definition of ``base period;'' the definition of ``actively engaged in

farming'' and ``insurance experience'' are revised; and definitions of

``earned premium,'' ``indemnified loss,'' and ``NCS base period'' are

added to read as follows:

Sec. 400.302 Definitions.

Actively engaged in farming--means a person who, in return for a

share of profits and losses, makes a significant contribution to the

production of an insurable crop in the form of capital, equipment,

land, personal labor, or personal management.

Earned premium--means premium earned (both the amount subsidized

and the amount paid by the producer, but excluding any amount of the

subsidy attributed to the operating and administrative expenses of the

insurance provider) for a crop under a policy insured or reinsured by

the Corporation.

Indemnified loss--means a loss applicable for the policy for any

year during the NCS base period for which the total adjusted indemnity

exceeds the total earned premium. If the person has insurance for the

crop in more than one county for any crop year, indemnities and

premiums will be accumulated for all counties for each crop year to

determine an indemnified loss.

Insurance experience--means earned premiums, indemnities paid

(after applicable adjustments), and other data for the crop (but not

including replant payments), resulting from all of the insured's crop

insurance policies insured or reinsured by the Corporation for one or

more crop years and will include all information from all counties in

which the person was insured.

NCS base period--means the 10 consecutive crop years (as defined in

the crop policy) ending 1 crop year prior to the crop year in which the

NCS classification becomes effective for all crops except Arizona,

California and Texas citrus (production) and sugarcane. For these

excepted crops, the NCS base period means the 10 consecutive crop years

ending 2 crop years prior to the crop year in which the NCS

classification becomes effective. For example: An NCS classification

effective for the 1996 crop year against a producer of citrus

production in Arizona, California, and Texas, and sugarcane would have

a NCS base period that includes the 1984 through 1993 crop years. An

NCS classification effective for the 1996 crop year against a producer

of all other crops would have a NCS base period that includes the 1985

through 1994 crop years.

3. Section 400.303 is amended by revising paragraph (a) and adding

paragraph (c) to read as follows:

Sec. 400.303 Initial selection criteria.

(a) Nonstandard Classification procedures in this subpart initially

apply when all of the following insurance experience criteria (see

paragraph (c) of this section) for the crop have been met:

(1) Three or more indemnified losses during the NCS base period;

(2) Cumulative indemnities in the NCS base period that exceed

cumulative premiums during the same period by at least $500.00;

(3) A premium has been earned in at least 1 of the most recent 4

crop years in the NCS base period;

(4) The result of dividing the number of indemnified losses during

the NCS base period by the number of years premium is earned for that

period equals .30 or greater; and

(5) Either of the following apply:

(i) The natural logarithm of the cumulative earned premium rate

multiplied by the square root of the cumulative loss ratio equals 2.00

or greater; or

(ii) Five (5) or more indemnified losses have occurred during the

NCS base period and the cumulative loss ratio equals or exceeds 1.50.

The minimum standards provided in paragraphs (a)(2), (3), (4), and (5)

of this

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section may be increased in a specific county if that county's overall

insurance experience for the crop is substantially different from the

insurance experience for which the criteria was determined. The

increased standard will apply until the conditions requiring the

increase no longer apply. Any change in the standards will be contained

in the Special Provisions for the crop.

* * * * *

(c) Insurance experience for the crop may be adjusted, by county

and crop year, to discount the effect of indemnities caused by

widespread adverse growing conditions. Adjustments are determined as

follows:

(1) Determine the average yield for the county using the annual

county crop yields for the previous 20 crop years, unless such data is

not available;

(2) Determine the normal variability in the average yield for the

county, expressed as the standard deviation;

(3) Subtract the result of paragraph (c)(2) from paragraph (c)(1);

(4) Divide the annual crop yield for the county for each crop year

in the NCS base period by the result of paragraph (c)(3), the result of

which may not exceed 1.0;

(5) Subtract the result of paragraph (c)(4) for each crop year from

1.0;

(6) Multiply the result of paragraph (c)(5) by the liability for

the crop year; and

(7) Subtract the result of paragraph (c)(6) from any indemnity for

that crop year. FCIC may substitute the crop yields of a comparable

crop in determining paragraphs (c) (1) and (2), or may adjust the

average yield or the measurement of normal variability for the county

crop, or any combination thereof, to account for trends or unusual

variations in production of the county crop or if the availability of

yield and loss data for the county crop is limited. Alternate methods

of determining the effects of adverse growing conditions on insurance

experience may be implemented by FCIC if allowed in the Special

Provisions.

4. Section 400.305 is amended by revising the introductory text of

paragraph (c) to read as follows:

Sec. 400.305 Assignment of Nonstandard Classification.

* * * * *

(c) A Nonstandard Classification may be assigned to identified

insurable acreage; a person; or to a combination of person and

identified acreage for a crop or crop practice, type, variety, or crop

option or amendment whereby:

* * * * *

5. Section 400.307 is amended by adding two sentences at the end

thereof to read as follows:

Sec. 400.307 Discontinuance of participation.

* * * * *

A Nonstandard Classification will no longer be applicable to the

person or the person on identified acreage if the Corporation

determines the person is deceased or has discontinued all farming

operations for all crops, such as the legitimate sale of the farming

operation to a disinterested person. If the person who discontinues all

crop farming operations later returns to farming or obtains a

substantial beneficial interest in a farming operation, the nonstandard

classification will be reinstated.

6. In Sec. 400.309, paragraph (a) is amended by revising the phrase

``45 days'' to read ``30 days'' and paragraphs (e) and (f) are removed.

Signed in Washington, D.C., on October 31, 1996.

Kenneth D. Ackerman,

Manager, Federal Crop Insurance Corporation.

[FR Doc. 96-28608 Filed 11-6-96; 8:45 am]

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