Crop losses in the U.S. will result in “substantial” losses: Moody’s

The massive drought parching the U.S. Midwest is likely to result in substantial gross insured losses for crop insurers and reinsurers and possibly their first overall loss in 10 years, Moody’s Investors Service notes in a recent profile of the industry.

“Although a significant portion of the loss will be borne by the U.S. government through its crop reinsurance program and by farmers, crop insurers and reinsurers could experience their first overall loss for the sector since the droughts of 2002,” stated Alan Murray, a Moody’s senior vice president.

Murray said results for each insurer are likely to vary significantly, depending on product and geographic mix, as well as reinsurance programs.

Moody’s noted that ongoing expense reimbursement reductions by the federal government to insurers have contributed to industry consolidation. The top five crop insurers — all national underwriters — now account for approximately two-thirds of direct premiums written.

“The U.S. crop and agricultural insurance sector is anchored in the multi-peril crop insurance (MPCI) program — the core of insurance protection for farmers — which is jointly operated by the U.S. government [a division of the U.S. Department of Agriculture] and private industry and insures farmers against losses on crops and livestock,” the profile notes. “Over time, the government has reduced expense reimbursements to MPCI crop insurers, which in turn has contributed to consolidation, offering competitive advantages to larger, diversified insurers.”

In a separate report, agricultural economists at the University of Illinois estimated the drought will trigger gross indemnities of roughly $30 billion this year, with an underwriting loss of $18 billion, reports the Financial Times. Of that, the U.S. government would shoulder approximately $14 billion, while private sector insurers are likely to face a loss of $4 billion, the University of Illinois stated.

Standard & Poor’s recently estimated the losses of private sector insurers and reinsurers at $5 billion.