The worst drought faced by the United States in decades is expected to cause as much as $68 million in third-quarter Crop Insurance losses for Ace Ltd., says the company’s chief executive.

During a conference call with financial analysts, Evan G. Greenberg, chairman and CEO for Zurich-based international insurer Ace, said that while second-quarter results for Crop Insurance were in line with expectations, the remainder of the year would likely deliver higher loss results.

“There is much discussion about drought conditions in the U.S., in some states quite severe and with a serious impact on crops,” said Greenberg. “Based on conditions as they stand now, and given our portfolio mix by state and crop, we will adjust our Crop Insurance loss ratio for the year up in the range of five points during the third quarter, bringing our crop-related-business combined ratio to between 93 and 94 percent.”

He said about $68 million after tax in estimated losses for Q3 is “our best estimate at this time.”

Greenberg added that should the current drought conditions worsen and continue until harvest time, “our modeled worst-case loss, based on what we know, would be an additional $200 million, after tax.”

He emphasized that the company “is not predicting this outcome. We are simply letting you know the outer bounds of reasonable, worst case.”

Greenberg noted that overall, the Crop Insurance business has been a very good one, “but it is a cat business” and subject to occasional losses.

As for Ace’s second-quarter performance, the company reports net income was off 45 percent, or $266 million, to $328 million for the quarter. Second-quarter net premiums written increased 4.5 percent, or $177 million, to $5.65 billion.

The drop in net income was due to the combination of mark-to-market losses on investments and the negative impact of foreign exchange.

For the first six months of the year, net income was up 54 percent, or $457 million, to $1.3 billion. Net premiums written rose 4 percent, or $303 million, to $10.44 billion.

The company reports its combined ratio for the second quarter improved four points to 88.7. For the first six months of the year the combined ratio improved 9.6 points to 88.9.

Greenberg cautioned that the economic crisis in Europe and political uncertainties over the fiscal future of the U.S. are challenges to be faced, but otherwise, earnings look good “except for the notable exception of Crop Insurance.”

“I don’t view this as a hard market,” he added. “I view this as a pricing correction. We are hardly in a hard market.”

Special Reports /

Ace CEO Outlines Drought Impact on Q3 Crop Business

Related Stories

Recommended For You