Midwest Drought May Cost Insurers $5 Billion

Private crop insurers, a group led by Wells Fargo & Co. (WFC) and Ace Ltd. (ACE), may face losses that exceed $5 billion if this year’s U.S. drought is worse than one in 1988, Standard & Poor’s said.

Hot, dry weather across much of the Midwest has damaged crops, led to a rally in corn and soybean futures, and boosted insurance loss estimates. The U.S. subsidizes 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. Private insurers sell and administer the coverage in the U.S. In return, the federal government backstops the firms with payments and reinsurance.

“Insurers with higher concentrations of premiums in the most-affected states, such as Kansas, Illinois, Kentucky, Indiana, Missouri and Tennessee, will see a larger share of the losses,” S&P analysts led by Jason Porter said today in a report. Read More on Bloomberg

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