NU Online News Service, Aug. 21, 2:03 p.m. EDT

A report from Standard & Poor’s says insured crop losses caused by the worst drought since 1988 could cost insurers and reinsurers more than $5 billion.

The rating service says crop insurers “will see some of the worst underwriting results on their books” in 24 years, but the losses will be manageable because of “loss sharing from the U.S. government and diversification with other lines of business.”

The losses, S&P continues, will be contained to the third-quarter of this year save for a “few outliers.”

“Based on these early industry estimated insured losses, we do not expect to take any rating actions solely because of crop losses at this time,” says S&P.

The loss estimate is almost double a $2.8 billion estimate from Milliman earlier this month, which also noted that insurers had paid out $822 million by early August.

Crop insurance operates through the Multiple Peril Crop Insurance program administered by the U.S. Department of Agriculture’s Risk Management Agency. The program covers 80 percent of insurable U.S. farm land. That translates into 264 million acres, 1.14 million policies and $110 billion worth of liability on about 500,000 farms, says S&P.

The worst affected areas S&P says are Kansas, Illinois, Kentucky, Indiana, Missouri and Tennessee.

For its part, rating service Moody’s says that a U.S.D.A report earlier this month said that this is the worst drought in the Midwest in 50 years and that conditions are credit negative for U.S. crop insurers.

Moody’s says the 12 top crop insurers in the United States had total direct premium written in 2011 of $12.4 billion of which $5.8 billion is in the top 12 drought states.

Of those 12, Rural Community (a Wells Fargo Company); Producers Agricultural, and John Deere Insurance Co. have more than 90 percent of their DPW in crop insurance.

The 12 states most impacted by drought Moody’s says are:

• Arkansas

• Georgia

• Illinois

• Indiana

• Iowa

• Kansas

• Mississippi

• Nebraska

• Oklahoma

• South Dakota

• Tennessee

• Wyoming

The USDA says that drought conditions cover the United States from California East to Kentucky. Drought designations also cover Florida, South Carolina, and parts of Georgia, Alabama and Hawaii.

Special Reports /

S&P Says Crop Losses Could Cost Insurers $5 Billion-Plus

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