Days after announcing it would likely sell its crop insurance business, the proverbial “bottom” has fallen out from under American Agrisurance, Inc. (AmAg).
The company announced Nov. 25 that Rain and Hail and others had decided they were no longer interested in purchasing the crop insurance company based in Council Bluffs, Iowa. The sale was expected to generate a December cash payment of $21.5 million, and another $5 million in reimbursed expenses to the struggling insurer.
The company has since been ordered by the Nebraska Department of Insurance and the Risk Management Agency not to sell any new insurance contracts subject to reinsurance by the Federal Cop Insurance Corporation. Earlier the company said it would discontinue its crop insurance operations at the sale's completion.
In response, the company now says it will continue servicing all existing federally reinsured insurance contracts accepted or renewed prior to Nov. 23, 2002.
Shortly before the collapse of the company's sale, AmAg announced that “during the fourth quarter of 2002 and the first quarter of 2003 the company expects it will terminate crop insurance underwriting operations and incur significant costs, which will be increased if the proposed transaction is not completed. In addition, if the proposed transaction is not completed, the company will likely establish significant additional allowance and recognize further impairment of certain intangible assets.”
AmAg's downhill slide became readily apparent Nov. 18, when the company announced third quarter losses of $131 million ($9.23 per share). For the nine-month period ending Sept. 30, 2002, the company estimated its losses at $140.5 million.
These losses, company officials admitted, underscore the “uncertainty of the company's ability to operate in the agricultural segment in the future.”
“While disappointed with the underwriting results triggered by the most severe and widespread drought in at least 50 years, we are even more disappointed that the capital-raising effort we began earlier this year has not resulted in a capital partnership for AmAg,” says John E. Martin, president and chief executive officer.
On its Website, the company bills itself as the nation's largest agricultural risk management company, saying AmAg is “growing strong” after acquiring the assets of the former IGF Insurance of Des Moines, Iowa, in June 2001.
A subsidiary of Acceptance Insurance Companies Inc., American Agrisurance has fallen on difficult times before.
A lawsuit filed by Arkansas farmer Jimmy Wallace, on the behalf of rice farmers, against American Agrisurance (AmAg) and three other related insurance companies insured the company's place in headlines, and increased its notoriety with farmers.
The lawsuit, filed in 1999, alleged breach of contract, fraud and violation of the Arkansas Deceptive Trade Practices Act by the crop insurance company.
Wallace was one of the rice producers who applied for the supplemental 3-cent per pound crop revenue insurance coverage offered by AmAg in 1999. Shortly after Wallace and hundreds of other of Delta rice growers signed up for the insurance product, AmAg abruptly announced March 1, 1999, that it was canceling its previous offer to farmers. Coming to the realization that the CRCPlus policies the company had sold were threatening the company's bottom line, AmAg CEO Rick Gibson told its customers that it was cutting CRCPlus coverage for rice from 3 cents to 1.5 cents per pound.
The class action lawsuit settlement included any and all farmers in the nation who applied for CRCPlus coverage on rice for 3 cents.
An estimated 6,000 rice producers reportedly shared in the estimated $3.7 million settlement, which was paid in 2002, with one-third of the total going to attorneys' fees and an “incentive award” going to those who served as class representatives in the litigation.