NU Online News Service, Dec. 16, 3:05 p.m. EST
WASHINGTON–Consolidation in the crop insurance sector continued as Everest Re Group, a Bermuda-based insurer, announced Wednesday that it has entered into discussions with Kansas-based Heartland Crop Insurance regarding a potential acquisition.
The merger would be the fourth consummated or proposed since the Agriculture Department negotiated a $6 billion cut in subsidies to the program, or 30 percent over 10 years. The new agreement also imposed hard and soft caps on agent commissions.
Industry officials predicted further consolidation of the industry after the Agriculture Department said it would cut the subsidies.
According to a statement by Everest Re, the acquisition would be made by Reinsurance Holdings or one of its affiliates. The statement said that Everest Re and Heartland have entered into a non-binding letter of intent regarding acquisition talks.
There were only 16 crop insurers when negotiations started.
QBE Insurance Group of Australia completed the acquisition of NAU Country, Ramsey, Minn., in June.
Then in October, Rain and Hail Service of Johnston, Iowa allowed itself to be taken over by ACE. Under that deal, ACE agreed to buy the remaining 80 percent of Rain and Hail Insurance Service that it doesn't already own for about $1.1 billion.
And on Nov. 18, QBE Insurance Group agreed to acquire the U.S. insurance operations of Bermuda-based RenaissanceRe, including Iowa-based crop insurer Agro National, for approximately $275 million.
That deal is expected to be completed by next March.
According to industry officials, there are several reasons the Agriculture Department insisted on cuts in the program.
One reason was that it was under pressure to use more of its funds to beef up its expenditures for food for the needy.
Another reason was the industry has had two years of relatively good weather, which has caused a growth in profits.
Additionally, the agriculture industry has done relatively well in recent years as export demand has grown because of serious droughts in some countries, such as Russia, as well as greater demand for food by countries in emerging nations.
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