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USA - Michael crop losses unlikely to fall to reinsurers

Hurricane Michael is expected to bring crop losses of up to about $2bn to the southeastern US – but that damage is unlikely to trickle into reinsurance.

The US Department of Agriculture reported that Michael severely damaged cotton, timber, pecan and peanut crops, impacting up to 3.7mn acres of crop. RMS estimated liabilities could reach up to $1.9bn, but privately industry sources suggest losses closer to $1.3bn.

Even with those large numbers, primary insurers in the area widely participate in the federal reinsurance agreement, according to sources.

Little to no impact of Michael’s crop damage will be felt by reinsurers, said Josh Madson, Aon’s head of analytics at the US agriculture division of its reinsurance solutions arm, and in this regard, we as a firm are constantly looking at ways in which we can help governments worldwide to de-risk.”

“The losses are going to be absorbed by primary insurance carriers, and then the federal government,” he said. “A lot of those losses will really be felt by the federal balance sheet.”

Madson said he did not expect Michael to make a big impact in terms of renewal pricing.

“I can’t imagine that reinsurance loss is going to be affected at all,” he said.

Georgia weathered the vast majority of Michael’s crop damage. The state lost an estimated $1bn in timber damage alone, according to the Georgia Department of Agriculture.

Cotton damage in the state could cost $300mn to $800mn. This has already been a hard year for the cotton industry, Madson said, after a drought in Texas earlier this year.

Aon’s model estimated cotton yield to be down to 93.1 percent of what is normal for the crop before Michael hit, and will likely get worse after the hurricane’s impact is known.

Still, prices haven’t moved much, he said.

“Cotton losses could’ve been much worse, exacerbated by a massive price swing in the upward direction,” Madson said.

“The concern over the ag damages is certainly understandable, it’s large and significant to producers for sure.”

Pecan trees blown over or snapped by Michael’s ferocious wind could bring a $560mn loss, with generational impact – it takes seven years for a pecan tree to grow marketable crop.

“Georgia has long led in the production of several renowned commodities and now we have the dubious distinction of also leading in the devastation and incredible loss of these prominent crops,” said Georgia Agriculture Commissioner Gary Black in a statement.

“These are generational losses that are unprecedented, and it will take unprecedented ideas and actions to help our farm families and rural communities recover.”

Madson said the full scale of Michael’s damage won’t be certain until February 2019, but many insurers won’t see significant impact.

This has been a solid year for crop insurance so far, Madson said, with corn and soybeans – which account for the vast majority of the US crop insurance market – performing comfortably.

But damage from Michael and the Texas droughts will not have a negligible impact, he said. “We’ll probably see a middling year – not exceptional, but not a loss.”

Source –