Northeast Nebraska and Candelaria Philippines | usedtodairyfarm, The A&O subsidy is administration and operation subsidy. This subsidy pays agents commissions, pays overhead associated with administrating the program ect. The premium subsidy goes to underwriting gains and losses.
For example, if a company states, they had an underwriting gain of 2%, that would be they took in 2 percent more premium then they paid out in claims. The A&O subsidy went to management, agents, adjusters, office help, building rent, mileage, ect.
One reason they have the A&O subsidy is a company can choose to place most all the risk (I'm not sure if they can actually place 100%) on the fcic (federal crop insurance corporation) The FCIC is part of the USDA. If they let the FCIC have all the underwriting gain or loss, they still get the A&O for administering the program for the RMA and FCIC.
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Crop Insurance Companies and Price Risk
