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Wells Fargo (WFC) Vends Crop Insurance Unit to ZAIC

Amid increasing regulatory restrictions on banks, revaluating certain underwriting insurance policies, the U.S. banking and financial services firm - Wells Fargo & CompanyWFC vended its crop insurance business. Rural Community Insurance Services (RCIS) and its subsidiary Rural Community Insurance Company (RCIC) has been sold to Zurich American Insurance Company (ZAIC), a subsidiary of Zurich Insurance Group.

The agreement is anticipated to be completed by the end of first-quarter 2016. Per terms of the deal, the unit will be sold for $675 million - $1.05 billion. However, other financial details were undisclosed.

Notably, through its two distribution businesses - Insurance Brokerage and Consulting (IBC) and Personal and Small Business Insurance (PSBI), Wells Fargo Insurance provides services to consumer and commercial customers.

"The sale of our long standing crop insurance business allows us to focus on and strengthen our distribution businesses, which account for approximately two-thirds of our Insurance revenue," said Laura Schupbach, head of Wells Fargo Insurance. "We have tremendous opportunity to provide our consumer and commercial customers the insurance and risk management solutions they need and we continue to invest in the business."

Through crop insurance, farmers safeguard themselves from financial crisis when natural calamities including drought, disease, freezing temperatures, hail or wind destroy their crops. Notably, around 90% of planted farmland is insured every year.

Notably, RCIS earns over $2 billion annual premiums from farmers working with more than 4,000 licensed agents who have the permit of insuring 137 types of crops.

Recently, OneBeacon Insurance Group Ltd. and Monsanto Co. are the firms who sold their crop insurance arms. Back in 2013, The Goldman Sachs Group, Inc. GS also sold its Global Atlantic Financial Group Ltd insurance unit.

Low interest rates in the U.S. along with extreme weather conditions aiding high insurance claims has made crop insurance less attractive to financial companies. Further, banks are under regulatory pressure to make their balance sheet stronger with less exposure to high-risk business. Therefore, banks including Wells Fargo are making such moves to scale back from the crop insurance market.

Currently, Wells Fargo carries a Zacks Rank #3 (Hold). A couple of better-ranked banks include The PNC Financial Services Group, Inc. PNC and Old Second Bancorp Inc. OSBC , both with a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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