In the year 2022, US crop insurance premiums soared to an unprecedented high of $21.5 billion, driven by the challenges posed by harsh growing conditions amidst extensive drought. However, this surge in premiums also resulted in an underwriting loss for the segment, as reported by AM Best.
Looking back to 2021, insurers faced weakened results due to similarly daunting growing conditions amid widespread drought that caused catastrophic crop damage. This led to a surge in insured losses.
The US crop insurance segment encompasses both the federal Multi-Peril Crop Insurance (MPCI) program and private crop insurance products. The majority of premiums, a staggering 93% in 2022, were written through the MPCI program.
AM Best revealed that MPCI insurers encountered a combined ratio of 102.8% in 2022, marking a significant 9.0 percentage-point deterioration from the previous year.
The rating agency highlighted that private crop insurance underwriting outcomes have consistently been unprofitable since being established as a separate reporting line in 2014. Despite this ongoing trend, 2022 saw the line’s best result with a combined ratio of 109.8.
Texas stands as the largest market for MPCI products, registering approximately $2.2 billion in premiums for 2022. Additionally, the Dakotas, Minnesota, Iowa, Illinois, and Kansas each recorded over $1 billion in premium, while Nebraska’s premium amounted to $971 million.
Rising MPCI premiums have been propelled by escalating commodity prices in recent years, stemming from the increased value of the underlying insured crops.
Over the last two years, the prices for the top four commodities have experienced double-digit growth, resulting in cumulative price increases of around 50% across the board.
Following a 37.5% increase in 2021, multi-peril crop premiums surged an additional 34.5% in 2022, reaching a record-breaking $20 billion.
Connor Brach, senior financial analyst at AM Best, explained, “MPCI premium growth has been driven by higher commodity prices in recent years. 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.”
While the market has seen significant M&A activity in the past 15 years, leading to market concentration, scale, innovation, and reinsurance strategies have emerged as vital components for a profitable crop book.
AM Best expressed cautious optimism about the potential for improved underwriting results in 2023, based on discussions with rated crop insurers. Timely precipitation in July significantly improved the crop yield outlook, but yield estimates remain subject to change as the season progresses.
As farmers increasingly recognize the importance of robust risk management strategies, both the multi-peril and private crop insurance sectors are poised for continued growth in the years ahead. By embracing innovative technologies, crop insurers can gain deeper insights into agricultural risks, enhance underwriting capabilities, and bolster the resilience of their portfolios, Brach concluded.
In related news, the Swiss Re Institute’s recent Sigma Report acknowledged substantial global progress in crop resilience while emphasizing the urgent need for additional efforts to address the significant $113 billion crop protection gap.
