Zurich Buys Crop Insurer RCIS

December 18, 2015 11:17 AM
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Zurich Insurance Group AG agreed to buy a Wells Fargo & Co. crop-insurance business for as much as $1.05 billion as the Swiss company puts to work excess cash left over from a separate takeover bid that it abandoned this year.

The purchase or Rural Community Insurance Services, or RCIS, will give Zurich a 20 percent share of a highly regulated market guarding farmers against weather-related losses, Vontobel analyst Stefan Schuermann wrote in a note after the deal was announced Friday. It will provide about $1.6 billion in net earned premiums by 2017, adding 3.5 percent to Zurich’s top line, he wrote.

Zurich joins HCC Insurance Holdings Inc. and Maurice “Hank” Greenberg’s Starr Cos. in expanding into crop coverage to bet on long-term growth in food demand and benefit from government subsidies that help absorb losses. HCC agreed last year to buy Producers Ag Insurance Group from CUNA Mutual Group, while Farmers Mutual Hail Insurance Co. of Iowa reached a deal to buy Deere & Co.’s crop-insurance unit.

Diversifying Risk

“The acquisition of RCIS will increase risk diversity of our general insurance business by leveraging the crop exposure, which has low correlation to the rest of our book,” Kristof Terryn, chief executive officer of Zurich’s general insurance business, said in a statement. Zurich is one of the largest providers of business coverage in the U.S. and has exposure to the home and auto markets though its management relationship with Farmers Insurance.

Zurich, which already provided reinsurance to RCIS, will pay Wells Fargo $675 million plus the amount of excess capital in the unit when the deal closes, estimated at as much as $375 million, according to statements from the companies. The insurers’ annual operating results are “not material” to the bank and the transaction is expected to be completed by the end of the first quarter, San Francisco-based Wells Fargo said.

Wells Fargo, the largest U.S. bank by market value, has focused on boosting commercial-lending and wealth-management units, while paring some insurance operations. The lender has been adding wealth advisers from Credit Suisse Group AG and agreed this year to acquire most of General Electric Co.’s railcar- and locomotive-leasing unit. Insurer AmTrust Financial Services Inc. reached a deal in May to buy a Wells Fargo business that provides vehicle service contracts.

“The sale of our long-standing crop insurance business allows us to focus on and strengthen our distribution businesses, which account for approximately two-thirds of our insurance revenue,” Laura Schupbach, head of Wells Fargo Insurance, said in the statement.

Excess Capital

Zurich advanced 0.6 percent at 2:30 p.m. Swiss time. Wells Fargo slipped 22 cents to $55.25 in early trading in New York.

Zurich had about $3 billion of excess cash on its books after it abandoned its takeover of RSA Insurance Group Plc in September. The company has said the capital will be invested in the business or returned to shareholders by the end of 2016. Switzerland’s biggest insurer is searching for a CEO after Martin Senn resigned Dec. 1 and Chairman Tom de Swaan was named as interim chief.

“There is no reason to wait for deploying the capital,” said Zurich Insurance spokesman Pavel Osipyants. “The decision to deploy the capital was made earlier.”

‘Strategic Options’

Wells Fargo, the largest U.S. bank by market value, said in August that it was looking into “strategic options” for the insurance unit. The business’s net loss widened to $7.98 million in the first six months of this year from $3.24 million for the same period in 2014, according to a regulatory filing.

Evan Greenberg’s Ace Ltd. and RCIS have been the largest U.S. crop insurers in recent years. Starr, led by Evan’s his father Hank Greenberg, won approval in 2013 to participate in the government’s crop insurance program from the U.S. Department of Agriculture.

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Spell Check

Northwest, IA
12/21/2015 10:47 AM

  SouthernMn, you don't know what you're talking about. $1.6B in premiums doesn't mean net earnings. That is like saying you "made" $700/acre with 200 bushel corn at $3.50. RCIS has lost money several years in a row, which is a big part of the reason they were sold off. The return to the insurer is capped at 14.5%, but that doesn't mean they are guaranteed that level of return. That is just the max allowed by RMA. And that is gross profit based on loss ratio, so all their expenses, including agent commissions, have to be paid out of that 14.5% (or less). The agents don't get 10%. And it's not all farmers' money - the federal government picks up most of the tab. I wouldn't say too much about others' lack of risk when you are part of the only industry that even has a risk-limiting product such as revenue insurance available.

Austin , MN
12/18/2015 03:35 PM

  1.6 billion dollars they will make from premiums!! All of us farmers money. 10% if not more goes to the agents we buy it from, but which they have no risk and all paper work and sittin back collecting us farmers money. This is crazy!


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