Crop Insurers in US Could Face First Loss Since 2002

Taxpayers may be responsible for 50-80% of underwriting losses due to severe drought     Crop insurers may face their first underwriting loss since 2002 as the worst Midwest drought in more than two decades threatens the US harvest, according to Iowa State University's Bruce Babcock.  "The only way they would make a profit is if they saw this disaster coming, because of the low water tables and the low soilmoisture levels at the beginning of the season, and they opted to minimise their exposure in the Corn Belt," Babcock, an economics professor at the Ames, Iowabased university, said on Sunday. "But the companies have made money year after year after year maximising their exposure to risk in the Corn Belt because it's been such a good run of years." Hot, dry weather across much of the Midwest has damaged crops, led to a rally in corn and soya bean futures, and boosted insurance loss estimates. The US subsidises farmers' premiums for so-called multiperil coverage, which protects against a loss of revenue or production as a result of drought, hail, wind, frost or other natural causes. Prices for the policies are set by an agency within the Department of Agriculture.  Crop insurers including Ace, QBE Insurance Group and Wells Fargo will probably face higher costs this year as farmers make claims, Fitch Ratings said in a report on Saturday. Private insurers sell and administer multiperil crop insurance in the US in return, the federal government backstops the firms with payments and reinsurance.  Taxpayers may ultimately be responsible for 50% to 80% of underwriting losses, given the severity of this year's drought, Babcock said during a media event hosted by the Washingtonbased Environmental Working Group, which tracks agriculture subsidies.  "Wells Fargo has a geographically diverse crop-insurance business," Gabriel Boehmer, a spokesman for the San Francisco- based bank, said in an e-mail. "We're prepared for what we expect to be another extreme claims season, but it's premature to speculate on the effects the drought will have on underwriting." Wells Fargo has reinsurance to help it share claims costs and protect against risk it retains, he said.  Stephen Wasdick, a spokesman for Ace, and QBE's Paula Symons had no comment.  "It is too early to determine the extent of the losses for the 2012 crop year, let alone determine if there will be an underwriting loss or gain for the industry," Laurie Langstraat, a spokeswoman for National Crop Insurance Services, an industry group, said in an e-mail. "This year's drought and last year's weather problems underscore the need for an efficient private sector-delivered crop-insurance programme." Temperatures will approach 100 degrees Fahrenheit (38 degrees Celsius) from Texas to South Dakota through July 28, intensifying crop stress as corn finishes reproducing and soybeans begin to set pods and fill them with seeds, World Weather said in a report.  Soya bean futures for November delivery rose 2% to close at $16.5225 a bushel on the Chicago Board of Trade after reaching a record $16.7375. Corn futures for December delivery fell 0.7% to $7.785 a bushel.  Earlier, the price reached $7.99. The all-time high on June 27, 2008, was $7.9925.  Drought Hits Insurers Too  Dry weather across much of the Midwest has damaged crops and boosted insurance loss estimates The US subsidises farmers' crop premiums, protecting them against a loss of revenue or production  Private insurers sell and administer multiperil crop insurance in the United States In return, the federal government backstops the firms with payments and reinsurance  Crop insurers will probably face higher costs this year as farmers make claims, says Fitch Ratings