The largest agricultural machinery company on the planet has agreed to the sale of its coverage business.
After having experienced several years of losses, Deer & Co. has now agreed to sell its crop insurance unit to the Iowa based company called Farmers Mutual Hail Insurance Co.
This allows the agricultural equipment manufacturer to shed a component of its business that has been quite costly.
The sale of the crop insurance involves two of the company’s coverage units. These are: John Deere Risk Protection, and John Deere Insurance Co. The terms of the sale have yet to be disclosed publicly. The buyer, Farmers Mutual Hail, is a company that was founded back in 1893, and it is expecting a larger demand as a result of the expansion of farm production in response to the requirements of a growing population.
Though Deere struggled with its crop insurance, other insurers have historically profited with this coverage.
Among the insurance companies that have benefited from selling the U.S. taxpayer backed coverage are Ace Ltd. and Wells Fargo & Co. Deere didn’t have the same kind of luck when it first stepped into multiple peril crop insurance (also called MPCI), as that entry was followed by serious problems. Nearly immediately after Deere began selling the policies, corn policies plummeted and there was a record drought. The result was notably higher claims than had been expected in both 2012 and 2013.
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According to a A.M Best Co. senior analyst, Marc Liebowitz, “MPCI has traditionally been very profitable.” That said, he also added that “In the last few years, one thing or another has impacted the results.”
Some companies, such as XL Group Plc, Starr Cos., and HCC Insurance Holdings have taken on this kind of coverage in order to help them to diversify the type of insurance business risks that they face, and to be able to take advantage of the backstop by the government. In February of this year, Global Ag Insurance Services LLC was acquired by XL Group, while Producers Ag Insurance Group was taken on by HCC in September.
The Global Harvest Initiative has predicted that by 2050, the population around the world will increase by a third, to reach 9.6 billion, and agricultural output will be required to double from its current levels. This suggests that the market for crop insurance will become a considerable and growing one, over time.