Insurers to Absorb Crop Losses Without Capital Hit, Says Fitch

NU Online News Service, July 23, 2:14 p.m. EDT

Fitch Ratings says net losses to private crop insurers will likely be an earnings event rather than a capital event.

"We believe the leading writers of crop insurance will be able to absorb any near-term crop losses and are likely to maintain current levels of financial strength," Fitch says in a statement.

The assessment comes as widespread drought blankets a majority of the United States.

The National Crop Insurance Services says about 83 percent of the insurable acres nationwide is covered by crop insurance. But experts have been unsure about the extent of the problem to crops caused by drought.

Some have said it is too early to predict losses while other reports tell of a situation in which farmers are abandoning withered crops and filing insurance claims before investing more money on things like pesticides and weed killers, as farmers have been buying policies that offer a greater level of protection.

The U.S. government has taken action, according to a Reuters report, with Agriculture Secretary Tom Vilsack asking crop insurers to allow farmers more time—until Nov. 1 instead of Aug. 1—to pay their premiums so that the farmers can conserve their cash through the drought.

Vilsack also said the USDA will allow haying and grazing on conservation and wetland reserves in counties impacted by drought, according to the Reuters report.

Fitch says losses are difficult to estimate due to the "nature and complexity of the product line."

The rating agency says premium volume among multi-peril crop insurers will likely be down compared to 2011 due to lower commodity prices.

The volume of business companies can write each year is derived by premiums set by the U.S. Department of Agriculture. Premiums are affected by commodity prices.

Multi-peril crop insurance is sold and serviced by private insurers but it is subsidized by the federal government. The USDA's Federal Crop Insurance Corp. reinsures primary insurers. Fitch says insurers typically buy additional reinsurance coverage on the private market.

The top providers of multi-peril crop insurance, according to Fitch, are ACE Ltd., QBE Insurance Group, Wells Fargo & Co., American Financial Group, Allianz Insurance Group, and Endurance Specialty Holdings—whose total net premium written is 25 percent crop insurance.

Insurance indemnities for all crops as of July 16 are $446 million compared with $230 million at this time a year ago, according to U.S. Department of Agriculture Risk Management Agency data.