Wells Fargo & Co (WFC) Looks To Divest Its Crop Insurance Business

Wells Fargo & Co (NYSE:WFC) is looking to sell its crop insurance unit in the United States. The unit is said to be one of the largest in the Americas. The company seems to have taken a decision following the restrictions imposed on the banks by the regulators. Banks are said to be reconsidering their underwriting insurance policy business.

Unveiled An Auction

Wells Fargo & Co (NYSE:WFC) has initiated an auction process for the divestment of the business. The crop insurance unit has the potential to get over $1 billion, Reuters reported. The company told Reuters that it is reviewing its tactical choices for its Rural Community Insurance Services subsidiary. However, the sale might exclude the brokerage division, Wells Fargo Insurance Crop Agency.

The diversified financial services provider indicated that it was evaluating its strengths, as well as, tactical fits for all its businesses regularly. The objective is to boost cross-selling, as well as, growing the distribution part of the insurance unit. Reinsurers seeking to focus on the primary insurance market might bid for RCIS. They might include PartnerRe Ltd, Axis Capital Holdings Ltd. There are also other potential buyers to bid for RCIS. Some of them have preferred not to comment on their intention to bid.

Farmland Covered By Insurance

The objective of the crop insurance is to help farmers defend themselves against any financial losses that they might have to suffer due to several cases. That included disease, drought, the wind destroy, hail, or freezing temperatures. Currently, close to 90% of the planted farmland is under the coverage of the insurance each year.

Wells Fargo & Co (NYSE:WFC) and other financial institutions started to feel the pinch of the prolonged lower interest rate regime. As a result, some of the businesses have already become unattractive to continue. The extreme flooding, as well as, weather including drought has only added oil to the ongoing fire to make a further dent on the company’s profitability.

Others Are Also Selling

In the recent months, Monsanto Company (NYSE:MON) and OneBeacon Insurance Group, Ltd. (NYSE:OB) have sold their divisions dealing with crop insurance.

In 2013, Goldman Sachs Group Inc (NYSE:GS) divested its insurance business, Global Atlantic Financial Group Ltd. Wells Fargo & Co (NYSE:WFC) is joining the growing list and intends to be active in the segment through its brokerage division. The company’s RCIS collects over $2 billion as annual premium from the farmers with over 4,000 licensed agents. The company covered 137 types of crops for insurance.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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