Strategy

Zurich Buys Wells Fargo’s Crop Insurer

The Swiss company joins other insurers that have been expanding into crop coverage to bet on long-term growth in food demand.
Katie Kuehner-HebertDecember 18, 2015

Zurich Insurance is buying Wells Fargo’s crop insurer, Rural Community Insurance Services, for up to $1.05 billion to further diversify its exposure in the United States.

The Swiss insurance giant said Friday it would pay Wells Fargo about $675 million plus the amount of excess capital in RCIS at closing, estimated to be up to $375 million.

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, Bloomberg said. Crop insurance protects farmers against weather-related losses.

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Insurers including HCC Insurance Holdings and Starr Cos. have been expanding into crop coverage to bet on long-term growth in food demand and benefit from government subsidies that help absorb losses.

“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 of Zurich’s general insurance business, said in a news release.

RCIS insures one in six U.S. farmers, Zurich said, providing risk management for more than 130 crops on over 90 million acres, roughly nine times the land area of Switzerland.

The U.S.-based insurer has recently suffered losses linked to recent extreme weather, according to Reuters. Over the past four years, it had an average gross combined ratio of 102.2% and an average loss of $26 million, DZ Bank analysts said in a note.

“This acquisition may make sense strategically, but given RCIS’s recent results it is expensive,” the bank wrote.

Wells Fargo had previously launched an auction for RCIS due to the weather-related losses. Its motivation to sell the unit was also fueled by stiffer regulatory requirements that have forced some banks to reconsider underwriting insurance policies, according to Reuters.

The deal is expected to close by the end of the first quarter of 2016.