Scorching summer heat and widespread drought conditions throughout the US are leading to questions about losses for the property and casualty insurance industry.The US hasn’t seen a drought this big in more than 50 years, according to a report release last week by the National Climatic Data Center, part of the National Oceanic and Atmospheric Administration (NOAA).According to data release Friday by the US Drought Monitor at the University of Nebraska, moderate to severe drought now covers about 64 percent of the lower 48 states and more than 70 percent of the Midwest Corn Belt is in some stage of drought — making this one of the most widespread droughts in the past century.Now, as the drought threatens the US harvest, crop insurers in the US are bracing for what may be their first underwriting loss since 2002. But according to a recent report by Fitch Ratings, diversification and reinsurance are likely to prevent crop insurers from seeing large net losses.The ratings agency says private insurers’ net losses, after federal and private reinsurance, are anticipated to have more of an impact on earnings rather than capital.“We believe the leading writers of crop insurance will be able to absorb any near-term crop losses and are likely to maintain current levels of financial strength due to the primary writers’ size, diverse portfolios, conservative use of additional reinsurance, and the business line’s historical profitability.”The hot, dry weather across much of the nation’s breadbasket has damaged crops, led to a rally in corn and soybean futures, and boosted insurance loss estimates. The US subsidises farmers’ premiums for so-called multiperil coverage, which protects against a loss of revenue or production as a result of drought, hail, wind, frost or other natural causes.Prices for the policies are set by an agency within the US Department of Agriculture (USDA). The USDA’s Risk Management Agency (RMA) also sets the policy terms and conditions. Since premiums are affected by commodity prices, dollar volume of business that companies write can vary greatly from year to year. Fitch says it anticipates that 2012 premium volume will be down overall compared to 2011 as a result of lower commodity prices used earlier this year to set rates for the upcoming period.Multiperil crop insurance is a relatively small segment of the US property and casualty insurance industry representing approximately one percent of annual net written premiums.The top writers of crop insurance are mostly subsidiaries of large, higher rated, diversified, global companies with solid balance sheets and experienced management teams that primarily use this line of business to help diversify their risk by product and geography.The public companies with the largest market share in this line based on 2011 direct premium written include Ace Limited (via its US subsidiary Rain & Hail Insurance Services, QBE Insurance Group Limited (via QBE Regional Insurance), Wells Fargo & Co. (via Rural Community Insurance Services), Allianz Insurance Group (via Allianz Climate Solutions), and Endurance Specialty Holdings (via ARMtech Insurance Services). Endurance has the greatest amount of crop insurance as a percentage of its total book at roughly 25 percent of net premium written.The primary companies typically provide crop protection throughout the US and are diversified geographically and by crop within the business line, which reduces the risk of exposure to a single event or a heavy accumulation of losses in any one region such as the Midwest.Due to the unique relationship with the federal government and the weather-related nature of the product, crop insurance is not correlated to the property and casualty insurance pricing cycle and is only offered in the US.“Wells Fargo has a geographically diverse crop-insurance business,” Gabriel Boehmer, a spokesman for the San Francisco- based bank, said.“We’re prepared for what we expect to be another extreme claims season, but it’s premature to speculate on the effects the drought will have on underwriting.” Wells Fargo has reinsurance to help it share claims costs and protect against risk it retains, he said.In addition to reinsurance protection provided by the federal government, companies typically purchase reinsurance coverage from the private market in an effort to reduce the potential for large net losses.Fitch also noted that industry profitability over the past several years has created a cushion for years of larger losses.