US Crop Insurers See 2022 Underwriting Loss Despite Record Premiums

Despite US crop insurance premiums reaching a record high of $21.5 billion in 2022, the segment posted an underwriting loss due to challenging growing conditions amid widespread drought, according to a report from A.M. Best.

The segment includes the federal Multi-Peril Crop Insurance (MPCI) program and private crop insurance products, with the majority of premiums—93 percent—written through the MPCI program, Best said. According to the Best's Market Segment Report US Crop Insurance: Premiums Reached New Highs, Drought Claims Drive Losses, MPCI insurers posted a combined ratio of 102.8 percent in 2022, a 9.0 percentage point deterioration from their 2021 combined ratio.

Meanwhile, private crop insurers' underwriting results have been consistently unprofitable since they were introduced as a separate reporting line in 2014, Best said, and, although the trend continued in 2022, the group's 109.8 percent combined ratio was the best result it ever posted.

MPCI premiums have increased significantly in recent years amid higher agricultural commodity prices, with Texas remaining the largest market for MPCI products, according to A.M. Best. After increasing by 37.5 percent in 2021, multiperil crop premiums increased another 34.5 percent in 2022 to reach a record $20 billion.

"MPCI premium growth has been driven by higher commodity prices in recent years," Connor Brach, senior financial analyst at A.M. Best, said in a statement. "A.M. 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 2 years."

While acknowledging that it's still early in the growing season, Best said it is cautiously optimistic that US crop insurers' underwriting results will show improvement this year based on the rating agency's conversations with rated crop insurers.

"Published crop-related industry reports also indicate that timely precipitation in July substantially has improved the crop yield outlook," the Best statement said. "Yield estimates still may change as the season progresses and weather conditions vary; however, given that farmers are increasingly aware of the importance of comprehensive risk management strategies, the multiperil and private crop insurance sectors are well positioned to continue their growth trajectory in the coming years."