Ace to Acquire Crop Insurer Rain and Hail Insurance Service for $1.1 Billion

Ace Ltd. said it would acquire all outstanding common stock of Rain and Hail Insurance Service Inc. that it doesn't already own for about $1.1 billion in cash.

Ace currently owns about 20% of the outstanding common stock of Johnston, Iowa-based Rain and Hail, with Rain and Hail employees owning 80% of the company. Rain and Hail will continue to operate as a separate franchise within the company's Ace Westchester division and Insurance-North America operations, Ace said in a statement.

Rain and Hail acts as Ace's managing general agent under Ace's standard reinsurance agreement with the federal government, and virtually all of the company's gross premiums flow through Ace under Ace's reinsurance agreement, the company said.

Rain and Hail provided 2009 gross premiums of $2 billion, net premiums of $800 million with net income of $199 million.

Rain and Hail Insurance Services Inc. is a holding company comprised of three wholly owned subsidiaries: Agri General Insurance Co., Rain and Hail Insurance Service International Inc., and Rain and Hail Insurance Corp., according to BestLink, which provides online access to A.M. Best's Global Insurance & Banking Database.

Rain and Hail has a network of 11,000 agents and is one of the largest MGAs serving the U.S. crop insurance industry. It has 400 employees and a five-year average combined ratio of 73, according to Ace.

Ace's relationship with Rain and Hail dates to 1980, and it acquired its 20% stake in the company through the acquisition of Cigna's property and casualty business in 1999. Ace said it serves as the primary insurer of Rain and Hail's business.

Crop insurance is not correlated to broader property/casualty insurance pricing cycle and increases Ace's proportion of less cyclical business, Ace said in supplemental information.

Pending regulatory approvals and the approval of Rain and Hail shareholders, the transaction is expected to close by the end of 2010.

Agri General Insurance Co. is the second largest writer of multiple peril crop insurance in the United States.

Ace American Pool currently has a Best's Financial Strength Rating of A+ (Superior). Agri General's rating of A (Excellent) was put under review with positive implications as a result of the acquisition announcement.

Shares of Ace Ltd. (NYSE: ACE) were trading at $57.50 midday on Sept. 15, up 0.24% from the previous close.

(By Meg Green, senior associate editor, BestWeek: Meg.Green@ambest.com)