Drought 2012: Biggest Crop Insurance Losses in a Decade

Aug 30, 2012

The U.S. drought has caused all sorts of problems, even for insurance companies. Moody’s Investors Services, one of the leading rating agencies in the world, is saying that the drought in the U.S. Midwest will result in substantial losses for crop insurance companies and reinsurers – calling for the first overall loss in a decade.

“Although a significant portion of the loss will be borne by the U.S. government through its crop reinsurance program and by farmers, crop insurers and reinsurers could experience their first overall loss for the sector since the droughts of 2002,” stated Alan Murray, a Moody’s senior vice president.

Another report by agricultural economists from the University of Illinois predicts that the U.S. drought could cause insurers to lose $30 billion – an amount of $18billion in excess of their premiums for the year. This University of Illinois report goes on to question the future impact on the crop insurance sector.

The losses that might face some insurance companies could support further industry consolidation. Currently, the top five national crops insurers now represent approximately two-thirds of the direct premiums written.

“Over time, the government has reduced expense reimbursements to MPCI crop insurers, which in turn has contributed to consolidation, offering competitive advantages to larger, diversified insurers
said Moody’s.

The 2013 crop insurance marketplace is sure to look different from the past few years, as the insurance companies, reinsurance industry, government and producer review the risks and rewards to insurance.

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