NEW YORK (Bloomberg) — Private crop insurers, a group led by Wells Fargo & Co. and Ace Ltd, may face losses that exceed $5 billion if this year’s US drought is worse than one in 1988, Standard & Poor’s said.Hot, dry weather across much of the Midwest 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 multi-peril coverage, which protects against a loss of revenue or production as a result of drought, hail, wind, frost or other natural causes. Private insurers sell and administer the coverage in the US. In return, the federal government backstops the firms with payments and reinsurance.“Insurers with higher concentrations of premiums in the most-affected states, such as Kansas, Illinois, Kentucky, Indiana, Missouri and Tennessee, will see a larger share of the losses,” S&P analysts led by Jason Porter said yesterday in a report. “Farmers in the most affected states are expecting one of their worst harvests since the drought in 1988.”Losses among crop insurers will vary depending on how much government and private reinsurance they use, S&P said. The companies can withstand the losses because of capital levels and revenue from other businesses, according to the ratings firm.“Underwriting losses will be a drag on earnings, but by themselves, will not affect the capital of most insurers that we rate,” S&P said. “We do not expect to take any rating actions solely because of crop insurance losses.”Wells Fargo has reinsurance, in which other companies agreed to absorb losses on policies sold by the firm, said Katie Ellis, a company spokeswoman. She said San Francisco-based Wells Fargo, the fourth-largest US bank by assets, has spread its risks to limit liabilities from a single event.“It’s a diversified, nationally based business so we’re not concentrated in any one area,” Ellis said. “It’s really too early to know how this is going to play out.”Evan Greenberg, chairman and chief executive officer of Ace, said in July that the dry conditions would affect second-half earnings. Projected third-quarter crop losses prompted the company to include a deduction of 19 cents a share in its full-year earnings forecast. Stephen Wasdick, a spokesman for Ace, declined to comment further.Wells Fargo advanced one percent to $34.40 at 2.18pm in New York and has climbed 25 percent since Dec. 31. Ace slipped 2 cents to $74.07, trimming its gain this year to 5.6 percent.Wells Fargo’s Rural Community Insurance Co was the largest approved provider of crop insurance in 2011 with $1.79 billion in policy sales, according to National Association of Insurance Commissioners data compiled by S&P. Zurich-based Ace was No 2 with $1.67 billion in sales, followed by QBE Insurance Group Ltd.’s NAU Country Insurance Co.American Financial Group Inc, which sells crop insurance along with property, casualty and supplemental health protection, last month reduced its earnings projection for the year, saying the drought will weigh on results.Soybeans climbed to an all-time high yesterday, and corn reached a record $8.49 a bushel on August 10 on the Chicago Board of Trade. The Department of Agriculture has slashed its corn harvest forecast by 27 percent since June, after declaring more than half of US counties as disaster areas amid drought conditions that stretched from California to New York.Losses this year may rival costs from the 1988 drought and a 1993 flood, Tom Zacharias, the president of National Crop Insurance Services, an industry group, said last month.Federal crop insurance dates to the Dust Bowl droughts of the 1930s. The programme and subsidies were boosted in 2000 as lawmakers sought to use it as a way to avoid what by the 1980s had become near-annual disaster payouts.