Allied World Assurance Company Holdings says it expects $40 million of drought-related crop reinsurance losses and expenses for the third quarter.
The Zug, Switzerland-based specialty insurance and reinsurance provider says investors can also expect to see the company book between $5 million and $10 million in losses from Hurricane Isaac.
The amounts are pretax and net of reinsurance recoverables, says Allied World, which adds that the third-quarter crop losses are in addition to the company's anticipated losses and loss expenses for this line of business prior to the severe drought that gripped the Midwest this year.
Final loss totals on Allied's crop reinsurance book can be significantly impacted by finalized yield tallies and commodity price levels, the company says.
Allied says its estimates for these events are derived from preliminary information from clients and brokers, a review of the terms of in-force policies and contracts, a review of outward reinsurance agreements and from its crop and catastrophe modeling analyses.
Catastrophe modeler AIR Worldwide has predicted a gross loss ratio for the industry of 120-180 percent while estimating losses of between $13 billion and $20 billion from farmer claims.
Standard & Poor's says insured crop losses could cost insurers and reinsurers more than $5 billion, but losses will be manageable and contained to the third quarter, for the most part.
A report released by Milliman predicted underwriting losses of $2.8 billion for 12 major corn and soybean producing states.
Other insurers in the industry have talked of crop-related losses. Evan Greenberg, CEO of Ace, said during a conference call on second-quarter earnings that the company's best guess for third-quarter crop losses was nearly $70 million.
At the end of July, American Financial Group dropped its earnings guidance over potential losses in its crop-insurance line after the company performed stress tests on its key premium states.
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