Scientists confirmed yesterday what most people living in the US already knew: July was the country’s hottest month ever in the history books. And as drought ravages much of America’s crops, re/insurance companies here in Bermuda are already starting to warn what the impact to their business will be.The worst drought in three decades has deepened throughout much of the US with at least 4,313 record high temperatures set during the month of July. According to the National Climatic Data Center (NCDC), up to 64 percent of the contiguous US was listed in at least a moderate drought. More than half of all US counties were declared disaster areas.With much of the US under severe drought conditions, crop insurance losses are mounting daily, affecting companies like Ace, Endurance and XL that, through their US subsidiaries, underwrite crop insurance. Many of those companies are already bracing for losses in the second half of the year, and so are some of the reinsurance companies who insure them.Aon Benfield, the global reinsurance intermediary this week released the latest edition of its Global Catastrophe Recap report, which reviews the natural disasters that occurred worldwide during July.According to the report, published by Impact Forecasting, the firm’s catastrophe model development centre, the end result of this drought will be economic and insured crop losses in the billions of dollars.“It will be a major loss situation,” said Thomas Zacharias, president of the National Crop Insurance Services, a lobbying group representing private crop insurers. “The companies are in the field adjusting claims as we speak.”An economist with the group roughly estimated that losses could top $20 billion, but just how high the net losses to insurers is in the back half of this year will depend on how long the drought lasts.Much of the loss will be mopped up by government subsidised crop insurance programmes, but the drought is now getting to the extent where some reinsurers are likely to be affected as well.Endurance Specialty Holdings has the greatest amount of crop insurance as a percentage of its total book at roughly 25 percent of net premiums written. According to the company’s CEO David Cash, although it’s not possible to predict right now what final crop yields and prices will be for the year, it’s safe to say there is potential for big losses in the second half of 2012.“These challenging growing conditions will be every bit as bad as the conditions experienced in 2002 and are likely as bad as those experienced in 1988,” Mr Cash told investors on the company’s Q2 earnings call.“While it is still too early to make any precise predictions as to the impact of the emerging drought we’ll have in our ultimate losses for the 2012 crop year, our internal scenario modelling today projects a full-year net loss ratio of approximately 100 percent,” Mr Cash said.Ace is expecting millions of dollars in drought-related losses in the third quarter, the company’s CEO said recently.During a conference call with financial analysts, Evan Greenberg, chairman and CEO of Ace said that while second-quarter results for crop insurance were in-line with expectations, the remainder of the year would likely produce higher loss results.“Based on conditions as they stand now, and given our portfolio mix by state and crop, we will adjust our crop loss ratio for the year up in the range of five points during the third quarter, bringing our crop related business combined ratio to between 93 and 94 percent,” Mr Greenberg said.He said about $68 million after tax in estimated losses for Q3 is “our best estimate at this time.”He went on to say that should the current drought conditions worsen and continue until harvest time, “our modelled worst-case loss, based on what we know, would be an additional circa $200 million, after tax”.Mr Greenberg emphasised that the company “is not predicting this outcome. We are simply letting you know the outer bounds of reasonable, worst case”.Alterra is also setting expectations for the third quarter. In its second-quarter earnings report released on Tuesday night, the speciality insurer indicated it expects to see a net underwriting loss of anywhere from $15 to $25 million in the third quarter of this year due to crop insurance claims.Munich Re said it is currently anticipating a net loss of about $198.5 million worth of crop failure covers because of the drought.Meanwhile, heavy rainfall in China that spawned flooding and landslides in nearly two-dozen provinces last month is expected to impact insurers as well — to the tune of $8.3 billion according to Aon’s global catastrophe recap.At least 475,000 homes and more than 4.1 million acres of cropland were destroyed“Much of China was affected by flooding rainfall during July, including parts of Beijing experiencing its heaviest rains in 61 years,” said Steve Jakubowski, president of Impact Forecasting. “On the opposite extreme, much of the US continued to face its worst drought in several decades. Both weather events have impacted crops and the agriculture industry.”