08-07-2012 07:52 PM
This study suggests that crop insurance companies might pay out $30 billion dollars, with about $18 billion being losses, as there isa a $12 billion premium collected.
"Summary and Commentary
Gross underwriting losses likely will be large this year, with underwriting losses of $18,000 million or more being possible. Given the nature of agriculture, these large losses from a crop insurance program of the current size and scope should be expected to occur in years like 2012.
In the past decade, there have been total underwriting gains of $15,319 million. In some senses, these underwriting gains partially offset the losses occurring in 2012. These gains would have been larger had the size of gross premium been the same in 2002 through 2010 as in 2011. With gross premium of $12,000 million per year and similar loss experience, underwriting gains would have been $25,000 million over the past decade. Hence, the underwriting losses in 2012 may seem larger relative to previous gains simply because the scope of the program has increased.
Crop insurance companies will face losses in 2012. Given Federal regulations and stress testing, crop insurance companies are highly likely to have sufficient funds to cover losses. However, there may be longer run impacts of these losses for crop insurance companies. This will be the first major loss year for crop insurance since many of the larger changes in crop insurance program have been made that have resulted in larger participation. Many of the companies that provide reinsurance to crop insurance companies have not seen losses of the current size. In addition, some of the crop insurance companies are owned by public companies, who may not have realized the scope of losses that their crop insurance subsidiaries could generate. Reactions of private reinsurers and public companies to these losses could influence the profitability and number of private crop insurance companies in the future.
Issued by Gary Schnitkey and Bruce Sherrick
Department of Agricultural and Consumer Economics
University of Illinois"
Do you think these numbers will figure in the Food Bill debate? In tieing crop insurance to conservation programs?
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