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Business deals

Japan's Sompo buys US crop insurer as weather risks grow

Deal helps diversify coverage and manage swings from climate change

Soybeans are harvested from an Indiana field last year. The rise in severe weather events has lifted demand for crop insurance while also heightening insurers' risk of high payouts.   © Reuters

TOKYO -- Japanese insurance group Sompo Holdings will acquire a major American provider of crop insurance as demand rises for protection against losses from extreme weather events on a warming planet.

Sompo International will spend 40 billion yen to 50 billion yen ($376 million to $470 million) to buy Diversified Crop Insurance Services, an arm of grain transporter CGB Enterprises. The U.S. company commands the fourth-largest share of the American market, with its crop insurance coverage focused on the Midwest.

Add in sixth-ranked ARMtech, a Sompo subsidiary with strength in the South, and the Japanese casualty-underwriting group will have more than $2 billion in gross written premiums for a 17.5% share of the U.S. market, creating one of the sector's largest insurance providers.

Crop insurance provides policyholders coverage against the loss of crops to natural disasters or the loss of revenue resulting from price declines. The rise in such severe weather events as drought and floods has lifted demand for insurance while also heightening the risk that insurers will face large payouts. Sompo seeks to better manage this risk through expansion and regional diversity.

Sompo will also form an alliance with the CGB group, tapping the partner's customer network for marketing after Diversified becomes a Sompo unit. The Japanese group plans to leverage know-how gained in the U.S., the world's largest crop insurance market, and branch out to such other countries as India and Brazil.

Crop insurance is positioned as a key pillar for Sompo, along with automobile and corporate insurance, as farming has little exposure to economic cycles. The latest acquisition means agriculture will account for a quarter of Sompo's international operations.

The deal follows the announcement in late August of a partnership with French cooperatives union InVivo Group and the 2018 purchase of Italian agriculture insurance agent A&A. Sompo also offers a weather warning service through a partnership with a U.S. technology company.

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