Wells Fargo sells crop insurance business for $1.05bn to surprise buyer

Four months after announcing it was looking to rid itself of the unit, Wells Fargo has sold the crop insurance business to a struggling insurer

Insurance News

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Four months after its plans to sell its crop insurance business, Wells Fargo & Company has a buyer.

Zurich Insurance Group AG has agreed to buy Rural Community Insurance in a $1.05 billion deal that is expected to close by the end of the first quarter of 2016.

With the purchase of Rural Community, Zurich will gain access to one of the largest US crop insurance providers. The insurer offers federal crop insurance programs that include multiperil and other private crop insurance products, and writes roughly $2 billion in business.

The deal comes at a time when Zurich has struggled to maintain stockholder value, eventually leading to the departure of Chief Executive Martin Senn.

The insurer recently called off an $8 billion offer to take over UK-based RSA Insurance after reporting a weaker-than-expected third quarter profit for its general insurance unit. It also reported a 79% decline in third-quarter net profit and an operating loss of $183 million.

To correct course, Zurich said it planned cut roughly 200 jobs.

The company is now hoping to pad its income with business from Rural Community Insurance. The company employs roughly 1,200 people and has contributed to the 5% of in non-interest income Wells Fargo receives from its insurance division.

It may be slow going, however. Grain analysts have reported that crop insurance price guarantees for US corn, soybeans and spring wheat would drop 10% or more this year, and a combination of low interest rates and severe weather have combined to spell a gloomy forecast for the sector.

Another prominent insurance group, OneBeacon, sold its crop insurance unit after experiencing a drop in earnings of nearly 3.53% in the past year.

Wells Fargo sought to sell the unit after an effort to streamline its insurance division. The bank has hired 100 executives in recent months in order to build relationships with its middle-market clients and increase overall profitability.
 

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