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SESD | I found this in my inbox this evening.
Top-10 US crop insurer John Deere to be auctioned
Major agricultural group John Deere has appointed Citi to sell its misfiring crop insurance business, which wrote $475mn of gross premiums in 2013, The Insurance Insider can reveal.
The auction is believed to be in its early stages but bilateral discussions are understood to have taken place over the last year or two.
John Deere Insurance Company is the second major US crop insurer to go under the hammer this year after Cuna Mutual appointed Goldman Sachs to sell Producers Agriculture Insurance Company (ProAg).
John Deere Insurance became one of the 18 companies licensed by the US government to write multi-peril crop insurance when it was founded in 2010. Its parent company is a $30bn market cap New York-listed firm that provides products and services to the agriculture and forestry industries worldwide.
The business grew quickly and had a gross book of more than $400mn in its second year of operation, but its results have been weak as hail losses, a serious drought and adverse movements in commodity prices subjected US crop insurers to a challenging period.
John Deere Insurance's operating losses swelled from $4.05mn in 2010 to $19.2mn in 2011, $29.7mn in 2012 and $35.6mn in 2013.
The insurer had a policyholder surplus of $123mn at the end of 2013.
In its analysis of John Deere Insurance's results, AM Best pointed to major weather-related events in 2011 and a severe drought in Texas. It also referred to drought conditions in 2012 that were considered some of the worst in 25 years.
Multi-peril crop insurance is widely believed to be a business that requires significant scale to be competitive, with some industry figures pointing to a $1bn premium threshold.
As such the likeliest acquirers for John Deere Insurance are consolidators, although it is possible that some of the better performing carriers will baulk at a bid for the business given its substantially sub-par results.
John Deere did not respond to a request for comment.
This is an abridged version of an article first published in today's weekly issue of The Insurance Insider, which subscribers can access in full at http://www.insuranceinsider.com/latest-issue.
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Top-10 US crop insurer John Deere to be auctioned
