Zurich Insurance to Buy Wells Fargo Crop Insurance Unit

Zurich Insurance Group AG agreed to buy a Wells Fargo & Co. crop insurance business for as much as $1.05 billion as the Swiss company puts to work excess cash left over from a separate takeover bid that it abandoned earlier this year.

The sale involves 100 percent of Rural Community Insurance Agency Inc. (RCIA) and its subsidiary Rural Community Insurance Company (RCIC), which together are known as Rural Community Insurance Services (RCIS, Wells Fargo said in a statement Friday. The transaction is expected to close by the end of the first quarter, it said.

Zurich joins HCC Insurance Holdings Inc. and Maurice “Hank” Greenberg’s Starr Cos. in expanding into crop insurance to diversify risks and bet on long-term growth in demand for food. The policies protect farmers against weather-related losses, with government subsidies helping to absorb industry losses. HCC agreed last year to buy Producers Ag Insurance Group from CUNA Mutual Group, while Farmers Mutual Hail Insurance Co. of Iowa reached a deal to buy Deere & Co.’s crop-insurance unit.

The purchase will give Zurich a 20 percent share of a highly-regulated market and result in “relatively interesting” cash flows, Vontobel analyst Stefan Schuermann wrote in a note Friday. It will add about $1.6 billion in net earned premiums by 2017, adding 3.5 percent to Zurich’s top line, he wrote.

Excess Capital

The Swiss firm will pay Wells Fargo $675 million plus the amount of excess capital in the insurance unit when the deal closes, estimated at as much as $375 million, the U.S. bank said. The insurers’ annual operating results are “not material” to the bank, it said. Wells Fargo advised its insurance unit on the transaction.

“The sale of our long-standing crop insurance business allows us to focus on and strengthen our distribution businesses, which account for approximately two-thirds of our insurance revenue,” Laura Schupbach, head of Wells Fargo Insurance, said in the statement. The rural insurance unit provides federal crop insurance programs in all 50 U.S. states, the bank said. It has a national network of more than 4,000 agents.

The Wells Fargo crop insurance units recorded approximately $2.1 billion in gross written premiums in 2014. Zurich has had a relationship with RCIS since 1992 and currently assumes 25 percent of RCIS’ retained premiums through a quota share contract.

Zurich was little changed at 250.50 euros as of 10:12 a.m. Swiss time. The stock has declined about 20 percent this year.

Zurich had about $3 billion of excess cash on its books after it abandoned its takeover of RSA Insurance Group Plc in September. The company has said the capital will be invested in the business or returned to shareholders by the end of 2016.

Switzerland’s biggest insurer is searching for a CEO after Martin Senn resigned Dec. 1 and Chairman Tom de Swaan was named as interim chief.

Wells Fargo, the largest U.S. bank by market value, said in August that it was looking into “strategic options” for the insurance unit. The business’s net loss widened to $7.98 million in the first six months of this year from $3.24 million for the same period in 2014, according to a regulatory filing. Annual profit was about $21 million in both 2014 and 2013.

–With assistance from Alan Bjerga and Shruti Date Singh