OLDWICK, N.J.--(BUSINESS WIRE)--Even as U.S. crop insurance premiums reached a record high in 2022 to $21.5 billion, the segment recorded an underwriting loss due to challenging growing conditions amid widespread drought, according to a new AM Best report.
The federal Multi-Peril Crop Insurance (MPCI) program and private crop insurance products comprise the U.S. crop segment, with an overwhelming majority of premiums written through the MPCI program, at 93% in 2022. According to the Best’s Market Segment Report, “US Crop Insurance: Premiums Reach New Highs, Drought Claims Drive Losses,” MPCI insurers posted a combined ratio of 102.8 in 2022, a 9.0 percentage-point deterioration from the previous year. Private crop insurance underwriting results have been consistently unprofitable since being introduced as a separate reporting line in the 2014 statement year, and although this trend continued in 2022, the 109.8 combined ratio was the best result the line has ever posted.
MPCI premiums have increased significantly in recent years, amid higher agricultural commodity prices, with Texas remaining the largest market for MPCI products. After rising by 37.5% in 2021, multi-peril crop premiums rose an additional 34.5% in 2022, to a record $20 billion.
“MPCI premium growth has been driven by higher commodity prices in recent years,” said Connor Brach, senior financial analyst, AM Best. “AM Best considers this to be exposure-driven, as the value of the underlying crops being insured has soared. Prices for each of the top four commodities have grown by double digits in each of the past two years.”
According to the report, merger and acquisition activity over the past 15 years has led to significant concentration in the MPCI market, and as a result, scale has become a significant component to developing a profitable crop book, along with innovation and reinsurance strategies. Geographic diversification helps lessen the risk of exposure to a single event or accumulation of losses from one location as well.
Although still early in the growing season, AM Best is cautiously optimistic that underwriting results will show improvement in 2023 based on conversations with rated crop insurers. Published crop-related industry reports also indicate that timely precipitation in July substantially has improved the crop yield outlook. Yield estimates still may change as the season progresses and weather conditions vary; however, given that farmers are increasingly aware of the importance of comprehensive risk management strategies, the multi-peril and private crop insurance sectors are well positioned to continue their growth trajectory in the coming years.
“By embracing innovative technologies crop insurers can gain better insights into the risks associated with agricultural activities, improve underwriting capabilities, and enhance the overall resilience of their portfolios,” said Brach.
To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=334633.
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.
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