Drought conditions could cause insurance loss of $5 billion: S&P

Insured crop losses in the United States will cost insurers and reinsurers more than $5 billion, notes a new report from Standard & Poor’s.

“Farmers in the most affected states are expecting one of their worst harvests since the drought in 1988,” states the report, Drought Will Hurt U.S. Crop Insurers, But Won’t Dry Them Up Completely.

“As a result, crop insurance books of business will see some of the worst underwriting results since 1988. Primary insurance companies will share crop losses with the federal government and private reinsurance companies, making the underwriting losses easier to take,” the report adds.

The 12 states most affected by the drought include Arkansas, Georgia, Illinois, Indiana, Iowa, Kansas, Mississippi, Nebraska, Oklahoma, South Dakota, Tennessee and Wyoming.

“Underwriting losses will be a drag on earnings, but by themselves, will likely not affect the capital of most insurers that we rate,” says Standard & Poor’s credit analyst Jason Porter. “Consequently, we do not expect to take any rating actions solely because of crop insurance losses at this time.”

The top U.S. crop insurers include ACE USA, QBE North America, Rural Community (Wells Fargo), American Financial, Fireman’s Fund (Allianz), Endurance, XL Reinsurance America and Munich Re America. The largest 12 crop insurers had total direct premium written in 2011 of $12.4 billion, of which $5.8 billion is in the top 12 drought states.