Like any insurance corporation, the Farm Credit System Insurance Corporation (FCSIC) is there to protect Farm Credit System (FCS) institutions, inspire confidence in them, and pay claims if an FCS institution fails.
The FCSIC operates like any insurance corporation would: it collects premiums from FCS banks and associations and pays claims when those institutions run into financial trouble. Larger premiums means more money to pay to any FCS bank or institution that needs it. And having FCS institutions pay larger premiums right now is a good thing – ag markets are often shaky, and tough times are always right around the corner.
But now, the FCSIC is loudly trumpeting that it is lowering insurance premiums. And it’s lowering the premiums by 40 percent. You read that right.
The FCSIC’s defense for this ill-advised move does not inspire confidence:
“At year-end 2017, insured debt was $265.4 billion, up by approximately $7.6 billion from
year-end 2016,” said Jeffery Hall, chairman of the FCSIC board of directors. “The board decided
to lower the premium rate on adjusted insured debt because, despite the increase in insured
debt, growth has slowed,” said Chairman Hall. “Growth in adjusted insured debt was 6.0 percent
in 2016 and dropped to 2.9 percent in 2017,” he said.
Chairman Hall’s argument amounts to, “well, the System’s debt increased, but because the FCS didn’t grow as much we want to cut premiums.” How does that make sense? Shouldn’t an increase in the amount of debt that could sink an FCS institution warrant a greater premium?
If Person A bought a house for $600,000 and held an insurance policy on it, doesn’t it stand to reason that the premium Person A would pay would be higher than that for Person B, who has a policy on a house worth $250,000? Would an insurance company accept a lower premium from Person A on the basis that his salary growth was lower than projected?
That’s what Chairman Hall’s statement amounts to.
With the FCSIC lowering insurance premiums, it will have less in its coffers to pay claims if any of the FCS institutions need a helping hand. And when the FCSIC can’t fulfill its obligations to its policyholders (the FCS institutions), who is left paying the bill?
Congress needs to step in to demand answers from the FCSIC’s board members. If it isn’t held in check, another taxpayer bailout could soon be on the horizon.