A report from Moody's says there are significant barriers to entry in the crop-insurance market, and cuts in government subsidies could mean even more consolidation in the future.
Moody's says that since the 1990s there has been a steady wave of consolidation in the crop-insurance line. In the 1980s there were 60 authorized multi-peril crop insurers. That figure has been reduced to 16 today.
The top five insurers account for close to 65 percent of direct premium written, and the top 10 for nearly 90 percent.
The top-10 insurers, in order of premiums written, according to SNL Financial, are:
- ACE USA
- QBE North Americ
- Rural Community (a Wells Fargo company)
- American Financial
- Fireman's Fund
- Endurance
- Producers Agricultural
- Farmers Mutual Hail of Iowa
- John Deere Insurance Co.
- Austin Mutual Insurance Co.
Most of these insurers are U.S. subsidiaries of major national and international diversified insurance and financial groups. The rest are either agriculture focused mono-line or regional insurers.
Moody's says that "consolidation has largely reflected a concurrent reduction by the U.S. government of expense reimbursements to insurers through the SRA (standard reinsurance agreement)."
In the past the SRA was in the mid-30 percent range. Under the Obama administration, that figure was reduced to the high-teens.
Besides a drop in reimbursement, the rise in information technology and "other general costs for insurers to underwrite and manage the business" are "placing a premium on scale and operational efficiency and substantially reducing the number of market participants."
Moody's says the U.S. government pays approximately 60 percent of total crop insurance premiums, covering "in excess of 100 crops and livestock categories. Corn accounts for about 70 percent of the program.
Historically, crop insurance has been profitable for insurers over the past decade. With the drought striking a vast portion of the United States, Moody's says this will probably be the first year for losses in the segment since 2002.
Recently, Standard & Poor's issued a report saying that the drought is expected to cost insurers close to $5 billion.
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