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CUNA Mutual: Drought Draws 30,000 Claims So Far
MADISON, Wis. (2/20/13)--The drought of 2012 was the worst in roughly a half century, pushing down corn yields in some states to their lowest level in nearly 30 years, with soybean yields also hard hit. That meant more claims filed by farmers insured by CUNA Mutual Group's crop insurance business.  

Click to view larger image Corn damaged by the drought this summer in Southern Illinois. (Photo provided by CUNA Mutual Group)
Through the Standard Reinsurance Agreement (SRA) with the U.S Department of Agriculture, ProAg--a crop insurance company that CUNA Mutual purchased in 2009--paid 30,000 claims in 2012. That amounts to $784 million so far and compares to a premium total for the program in 2012 of $608 million, Mike Connealy, president/CEO of ProAg, told News Now for this special report.

In 2011, the drought in the Southern Plains also resulted in significant crop losses--particularly with cotton--but it had less of an impact on ProAg's earnings. However, the loss numbers are similar year over year, Connealy said.

CUNA Mutual has been involved with ProAg since 2006, and the company diversified its insurance coverage to include a bigger role in crop insurance in 2009.  

Due to the complex nature of the SRA and private sector reinsurance, the actual year-to-date underwriting loss in 2012 so far for ProAg is in the 2% of premium range, Connealy explained.

"It's a cyclical business," Connealy added. "You'll have several good years, then one really bad year. Like any insurance business, financial results in crop insurance can be better in some years than others.

"For example, in 2010, ProAg accounted for almost half of CUNA Mutual Group's operating revenue growth, which offset challenges in our credit union business lines due to the down economy," he explained. "As a result of ProAg's performance that year, credit union leagues received $5 million more from CUNA Mutual than in previous years."

From CUNA Mutual's perspective, there are some lessons to be learned and conclusions drawn from a big event like the severe drought.

Preparation for a disaster year requires adequate staffing of field claims adjusters, Connealy explained. ProAg was well-prepared to handle the large number of claims due its staff levels and the ability to move employee adjusters from low-loss frequency areas such as Minnesota to drought states such as Nebraska, he added.

"We are in the weather business, and a drought such as 2012 provides us a chance to exhibit our ability to handle claims," Connealy said. "Any insurance provider can look good when the test is easy. Our record in 2012 is one of execution when the pressure was on due to the heavy claim volume. We will retain and grow our book going forward thanks to passing this test."

The 2012 drought means an upswing in future business for ProAg, with a caveat.

"Farmers will tend to buy higher levels of coverage than what they might have had in 2012," Connealy said. "This will tend to increase the premium volume for the industry. However, that increase may be a bit uneven, as states such as California or Florida--where ProAg has a decent footprint--were not affected by the 2012 drought."

So what is the outlook heading into this summer for crop insurance coverage?

"The only known effect is that farmers will still have coverage for 2013," Connealy concluded. "Whether they decide to plant corn, soybeans or another crop is up in the air until April or so, as world markets for commodity prices move up and down. The drought appears to have broken in the Eastern Corn Belt. The Western Corn Belt is still on the dry side. It is a good two to three months for the planting season in the Western Corn Belt, so there is plenty of time for the weather pattern to change."  

(See tomorrow's issue for another News Now special report on second-generation mobile banking.)
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