NU Online News Service, Aug. 30, 3:35 p.m. EDT
Despite a cut in federal subsidy to the crop insurance program, crop insurers are expected to remain profitable, but they likely won't see the 20 percent-plus returns they enjoyed in the past, a report said.
In a report from New York-based investment banking institution Keefe, Bruyette & Woods, analysts said that with the expiration of the standard reinsurance agreement (SRA) from the U.S. government, insurers will see reduced profitability and the impact is expected to be "a modest negative" to companies that "are substantial players" in the crop insurance program.
Earlier this year, the government cut subsidies to the SRA by $6 billion over a 10-year period.
Keefe, Bruyette & Woods said despite the cuts, the new SRA "will still likely result in attractive mid-teens ROEs [return on equity]."
On the issue of market direction, the investment firm said it expects reports of favorable returns development to decline heading into next year, but a turnaround in the direction of the soft market will not happen anytime soon.
"We would expect a move toward a hard market to remain stubbornly slow given the industry's delayed reaction to weakening reserves," the report said.
The firm said it expects to see earnings drop off as favorable year reserve developments from 2003 to 2007 are used to offset deficiencies from the 2008 to 2009 accident years.
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