However, much has changed since 1988. The insurance pool is much larger and there are more crops in the pool. Corn is about 40 percent and soybeans are about 20 percent of the pool, which means 40 percent of the pool is in other crops. Because the USDA’s Risk Management Agency (RMA) averages all crops together across the country, it will be difficult to generate a national loss ratio over 3.00. 

“There is some question if the 2012 crop has had enough damage to generate a national loss ratio on corn equal to 1988,” Barnaby said.

“The most current USDA data suggest the losses are worse in Indiana but not as severe in Iowa and Minnesota. It is rare for the national loss ratio to exceed 2.00. That has only happened twice in the last 25 years, and it is also rare for a state loss ratio to exceed 5.00 where the insurance companies have a stop loss in their reinsurance agreement.

The rare year was 1993 when the national loss ratio was over 2.19 and Minnesota’s all crop loss ratio was 6.10. Therefore, any suggestion the underwriting losses will exceed $20 billion is premature. The 2012 underwriting losses likely will be between $10 billion and $12 billion.

If we assume no rain for the next month then a $15 billion to $20 billion loss is possible and it would be a record loss ratio. The $15 billion scenario seems more likely with each crop condition report.

To get to a $17 billion underwriting loss on corn would require a loss ratio of about 5.00 on the national corn book only. The largest corn loss ratio was in 1993 at 3.29 and higher than 1988. 

“I’ve gone back to 1988 and looked at the history in the top 18 producing corn states and it’s very rare, even at the state level, much less at the national level, where you have a loss ratio of 5.0. In fact there are only five states that have ever had a loss ratio of 5.0 on corn and they will surprise you,” Barnaby said.

 “The top four are in the Corn Belt. That was the first shocker. No. 1 was Minnesota in 1993 and the corn loss ratio was 8.27. Illinois in 1988 was No. 2 with a loss ratio of 6.61. Pennsylvania had a loss ratio of 6.46 in 1991 and Wisconsin in 1988 had a loss ratio of 6.41.

“Texas, the only Great Plains state in the top five, in 1988 had a loss ratio of 5.37. All of the rest of the states had a loss ratio on corn below 5.0, so if you’re going to get to national loss ratio above 5.0 on corn, it will require a number of state loss ratios to exceed 5.0 and this is just for corn.”

“It’s very rare even at the state level, and it would be more rare at the national level because all crops gets averaged together, so I think my $15 billion with $10 billion from corn, should be on the upper end of the size of the underwriting loss,” Barnaby said.