Zurich Insurance Group AG to buy Wells Fargo’s crop and insurance business for $1.05 bn

Zurich Insurance Group AG intends to buy a Wells Fargo & Co crop insurance business for $1.05 billion as it looks to put to use leftover cash from a separate takeover bid that it abandoned earlier this year.

According to Wells Fargo's statement on Friday, the sale of Rural Community Insurance Services included its Rural Community Insurance Co subsidiary. The lender added, the transaction was expected to close by the end of the first quarter.

Zurich would join HCC Insurance Holdings Inc as also Maurice ''Hank'' Greenberg's Starr Cos, with its expansion into crop insurance to diversify risks and bet on long-term growth in food demand. The policies protect farmers against weather-related losses, with government subsidies helping to absorb industry losses.

With the purchase, Zurich would get a 20-per cent share of a highly-regulated market and result in ''relatively interesting'' cash flows, Vontobel analyst Stefan Schuermann wrote in a note. It would add around $1.6 billion in net earned premiums by 2017, adding 3.5 per cent to Zurich's top line, he wrote.

According to the US bank, the Swiss firm would pay Wells Fargo $675 million plus the amount of excess capital in the insurance unit when the deal closes, at an estimated $375 million.

"The acquisition of RCIS will increase risk diversity of our general insurance business by leveraging the crop exposure, which has low correlation to the rest of our book," General Insurance, a unit of Zurich, chief executive Kristof Terryn said.

The acquisition would see over a fifth of the $3 billion in spare cash that Zurich Insurance had committed to use for small-scale acquisitions and returns to investors after called off a larger bid for British insurer RSA Insurance Group Plc earlier this year.

According to Zurich, it expects to fully integrate the business in 2017.