Lower commodity prices have led AM Best to expect further and more significant declines in U.S. crop premium levels for 2024, according to a new Best’s Market Segment Report.

The report states that overall yields for corn and soybeans are currently forecast to be slightly higher than 2023 and although agricultural commodity futures prices for corn, soybeans and wheat have declined moderately from projected levels, the reductions remain within producer deductibles. “However, if prices continue to decline, yields come in significantly below expectations, or both occur, underwriting results for U.S. multi-peril crop insurance (MPCI) writers will likely remain under pressure,” said Connor Brach, associate director, AM Best.

The federal MPCI program and private crop insurance products comprise the U.S. crop insurance segment, with an overwhelming majority of premiums written through the MPCI program. Crop insurance premiums overall declined modestly by 3% in 2023 but remained elevated at $20.8 billion. This was driven by the premium decline in the MPCI line, which dropped 3.6% to $19.3 billion in 2023. The balance is made up of private crop premium, which increased by 4.4% to $1.54 billion during the same period.

According to the report, MPCI writers reported weaker results on an aggregate basis in 2023. These results are subject to volatility due to the catastrophe-like nature of the business. The segment’s combined ratio deteriorated 4.5 points from 2022, to 107.3, indicating a $750 million underwriting loss. Crop insurers have struggled to achieve consistent underwriting profitability since 2019. Combined ratios for this segment have exceeded 100 in four of the past five years, and averaged 102.6.

“These results are a notable deterioration from the 2014-2018 period, which benefited from profitable underwriting results in three years and an average combined ratio of 91.1,” Brach said.

From a geographic perspective, the eastern half of the United States had lower loss ratios than the western half. Notable exceptions include the New England states, all of which generated unfavorable loss ratios, but these are relatively small markets for crop insurance products. Results in Texas, the largest state for MPCI products, significantly improved year over year but the loss ratio was still unfavorable, at 147.3, due primarily to drought, heat, and hot wind conditions. Drought has been the leading individual cause of MPCI losses in the three most recent years, with over $6.6 billion of indemnities due to drought in commodity year 2023 and an additional $1.4 billion of indemnities attributable to excessive heat conditions.

Merger and acquisition activity over the past 15 years has led to the significant concentration in the MPCI market, dominated by the leading approved insurance providers. The slight decline in the segment’s premium in 2023 was matched by the 3.8% decline of the top five MPCI writers. Year over year, premium for US MPCI contracted by 3.6%, versus growth of 35.5% in 2022 and 37.5% in 2021.

“This MPCI premium decline in 2023 reflects the impacts of commodity price drops, offset by the continued growth in demand for comprehensive coverage against perils, including adverse weather events, pests, and crop diseases,” Brach said.

To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=344915 .

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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