By Caroline Henshaw
SYDNEY--QBE Insurance Group's (QBE.AU) hopes of a disaster-free
year are withering as analysts now expect its exposure to the U.S.
crop-insurance market to hurt its 2012 earnings.
Morgan Stanley's Daniel Toohey estimates that the Australian
insurer may take a hit of up to US$270 million as the worst drought
in more than 50 years continues to grip large swathes of the
Midwest, sending crop prices soaring. That will hurt insurers
dealing in the most popular type of insurance offered to the
country's farmers.
U.S. farmers planted a record 96.4 million acres this season,
but yield projections have been slashed and prices have jumped as
much as 60% since the seeds were sown. That may translate into as
much as US$20 billion in claims paid out by the U.S. government and
insurance companies, according to data compiled by The Wall Street
Journal.
"The U.S. drought is likely to be QBE's first major catastrophe
for 2012," said Morgan Stanley's Mr. Toohey.
CLSA analyst Jan van der Schalk estimates that QBE could face a
smaller loss of up to US$100 million, and says that a 5-10%
earnings hit "isn't insignificant."
QBE's net profit plunged 45% last financial year after
unprecedented weather events in 2011 slashed the insurer's margins.
Mr van der Schalk said the U.S. drought may raise further "issues
around QBE's approach to risk management and how much margin is
being paid away to 'belt and brace' this risk."
A spokeswoman for QBE declined to comment ahead of the insurer's
results later this month.
Write to Caroline Henshaw at caroline.henshaw@wsj.com (Mark
Peters in Winnebago contributed to this report.)
Subscribe to WSJ: http://online.wsj.com?mod=djnwires