NU Online News Service, Jan. 30, 1:25 p.m. EST
National Crop Insurance Services (NCIS) says indemnity payments surpassed $9 billion for the first time in history in 2011, and Moody’s Investors Service says this development could put smaller, geographically concentrated insurers at risk.
NCIS cites historic droughts in the Plains, flooding along the Mississippi River and
deep freezes in the South for the $9.1 billion in payments, and says the figure could grow to $10 billion as remaining claims are settled.
Tom Zacharias, president of NCIS, says in a statement, “Thanks to the foresight of Congress, crop insurance has been in place to weather enormous natural disasters and help ensure that farmers survive to plant yet another year. Those billions in damages would have landed on the plates of input suppliers, lenders, marketers and farm families if crop insurance wasn’t in place.”
As noted in Moody’s Weekly Credit Outlook, crop insurers are licensed by the Risk Management Agency of the U.S. Department of Agriculture and “generally cede a large portion of crop losses to the federal government through the Federal Crop Insurance Corporation’s Standard Reinsurance Agreement.”
As such, Moody’s says, “We expect that the industry-wide combined ratio for 2011 will come in below 100....
“However,” Moody’s adds, “it will be significantly weaker than in 2010, a banner year, and perhaps more in line with the more loss-intensive 2008 and 2009.”
Moody’s also says losses will vary considerably by group. While larger, nationally diversified insurers should benefit from profits earned in less-affected states and regions, smaller insurers that focus on single states and regions could see combined ratios over 100, especially since many of these smaller insurers operate in central and Midwest states.
