Thursday, July 19, 2012

Publicly Held Insurers With the Largest Exposure to Crop Losses (ACE; QBE.asx; AFG; ENH)

Press release via MarketWatch:
Fitch: U.S. Crop Insurers Likely to Absorb Near-Term Losses
Scorching summer heat and widespread drought conditions are leading to questions regarding crop insurance losses for the property/casualty insurance industry. Fitch Ratings notes that, while underwriting performance in crop insurance is likely to deteriorate in 2012, the magnitude of losses is difficult to estimate given the nature and complexity of the product line.

However, private insurers' net losses, after federal and private reinsurance, are anticipated to have more of an impact on earnings rather than capital. 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 due to the primary writers' size, diverse portfolios, conservative use of additional reinsurance, and the business line's historical profitability. 

Multiperil crop insurance is a relatively small segment of the U.S. property/casualty insurance industry representing approximately 1% of annual net written premiums. The top writers of crop insurance are higher rated, large, diversified, global companies with solid balance sheets and experienced management teams that primarily use this line of business to help diversify their risk by product and geography. The public companies with the largest market share in this line based on 2011 direct premium written include ACE Limited (issuer default rating [IDR] of 'A+'), QBE Insurance Group Limited (IDR of 'A'), Wells Fargo & Co. (IDR of 'AA-'), American Financial Group, Inc. (IDR of 'A-'), Allianz Insurance Group (IDR of 'AA-'), and Endurance Specialty Holdings (IDR of 'A-'). Endurance has the greatest amount of crop insurance as a percentage of its total book at roughly 25% of net premium written. 

The primary companies typically provide crop protection throughout the U.S. and are diversified geographically and by crop within the business line, which reduces the risk of exposure to a single event or a heavy accumulation of losses in any one region such as the Midwest. Due to the unique relationship with the federal government and the weather-related nature of the product, crop insurance is not correlated to the property/casualty insurance pricing cycle and is only offered in the U.S. In addition to reinsurance protection provided by the federal government, companies typically purchase reinsurance coverage from the private market in an effort to reduce the potential for large net losses. We note that industry profitability over the past several years has also created a cushion for years of larger losses....MORE