HISTORICAL RATE OF RETURN ANALYSIS

The Risk Management Agency (RMA) of the U.S. Department of Agriculture (USDA) engaged Milliman Inc. (Milliman) to recommend and implement a methodology, based on insurance industry standards, to calculate the historical rate of return attributable to the sale of multiple peril crop insurance reinsured through the Standard Reinsurance Agreement (SRA). This engagement requires Milliman to estimate the actual rate of return for multiple peril crop insurance (MPCI) for the reinsurance years 1989 through 2008, both in the aggregate as well as for individual providers. The rate of return on equity is the metric that is generally used to evaluate the profitability of investment opportunities. Similarly, in a regulatory context, rate of return on equity is typically used as the target return that a regulated entity should be permitted when setting the price for the regulated good or service. For both purposes, the proper rate of return is understood to be the economic rate of return on equity capital.