Leaders of some of Bermuda’s top insurance companies are fuming following an article in the Wall Street Journal they say unfairly categorised them, their business and their involvement in the US crop insurance industry.The article, titled, “Farm Bill Holds Windfall for Insurers” claims “foreign insurers” like Ace, XL, Endurance and American Agri-Business Insurance, all of which are either based or have large operations in Bermuda, stand to collect millions, even billions, of dollars in US taxpayer-funded subsidies as part of a shift in farm policy. The legislation, the WSJ article claims, “would benefit numerous US insurance companies — as well as several based in Australia, Bermuda and Switzerland that in recent years acquired five of the nine largest US crop-insurance companies”.Brad Kading, president and executive director of the Association of Bermuda Insurers and Reinsurers (ABIR), which represents 22 of the world’s largest international insurers and reinsurers says the article unfairly portrays Bermuda and other foreign-based companies and how they do business.“The legislation focuses on all crop insurers, the article focused just on the foreign-controlled crop insurers to try and make a rhetorical point that we can cut this programme back and it doesn’t hurt anybody in the US — it just hurts foreign companies,” Mr Kading said.“They’re trying to make a political point by attacking foreign controlled companies while missing the point that the legislation targets all crop insurers regardless of whether they’re foreign controlled or not.”Mr Kading says the reporter who wrote the article for the Wall Street Journal, Damian Paletta, got it wrong. “Historically, there have been a lot of non-US insurers who owned US companies that are in this business and they do the business through their US subsidiaries,” he said.“They employ people in the United States to conduct the business and help make the market more competitive,” Mr Kading said. “They do their business through their US subsidiaries which means they pay taxes on their US profits and they have American workers who are paying taxes as well — these companies have US investments.”The WSJ article claims the crop insurance business is profitable for them “largely because the US government covers up to 70 percent of the crop-insurance premiums, pays insurers more than $1 billion a year to cover overhead and administrative costs and picks up the tab on some claims”.But many of the insurers and reinsurers The Royal Gazette spoke to on and off the record here in Bermuda told us the idea that crop insurance profits are being stripped out of the US to foreign companies just to “boost the firms’ balance sheets”, as the article put it, is a great misconception — that money made off crop insurance goes to supporting the business, employing Americans and helping US farmers.Michael McGuire, chief financial officer of Bermuda-based Endurance Specialty Holdings Ltd says every one of the crop insurance companies doing business in the US is US domiciled, US based, has American employees and is paying US taxes.“One hundred percent of our employees supporting our crop insurance operation are based in the US,” Mr McGuire said. “We employ a lot of people in the US.”The same is true of the other foreign owned subsidiaries providing crop insurance. It’s estimated that eight of the 20 largest crop insurance companies operating in the US are foreign-owned. In a graph entitled “Harvesting Subsidies” the WSJ listed the top five firms receiving US government funds and how much they received for administrative and operating expenses from 2007-2011. Ace Ltd, which is based in Switzerland, but has a large operation here in Bermuda, was listed at the top. But it’s Ace’s US subsidiary, Rain & Hail Insurance Services that does the business.Many of the insurers and reinsurers this newspaper spoke to said that without the backing of larger re/insurance companies like Ace, Endurance, XL and the like, many US crop insurance companies would be out of business.Mr McGuire said there’s a misconception that “foreign companies” are trying to move into the US and extract benefits.“The fact that some US crop insurance companies are subsidiaries of larger global insurance enterprises is less a reflection of foreigners trying to extract a benefit from the US and more a reflection of the structure of the insurance industry,” he said. “The insurance industry is global in nature and the US benefits significantly from the industry’s ability to spread US risks across a global portfolio of risks and a global capital base, ultimately lowering the cost of insurance and increasing availability of insurance coverage to US businesses.”Mr McGuire says US crop insurers are a lot like Florida insurance companies who are concentrated in hurricane risk — without the backing of a larger company with a more diversified book of business, they can’t cover all the risk they need to write.He says a company that only does US agriculture insurance is incredibly exposed to volatility in that one area. If there’s a year where there’s wide scale drought in the US, and that company is only writing crop insurance, that company’s likely to go out of business, he says.But companies writing crop insurance alongside global insurance and reinsurance business as part of a broad portfolio he says, can absorb the risk better, which is why, he says there has been increased globalisation in all areas of concentrated risk — whether it’s crop insurance, or property and casualty.National Crop Insurance Services (NCIS), a Kansas City-based non-profit group that does research for the crop insurance companies says it’s important for foreign-owned companies to participate and take risk in the US crop insurance industry — spreading the risk among a larger pool of insurers.“Because of the magnitude of risk inherent in US agriculture, companies that participate in the US Federal crop insurance programme are mandated by law to have quick and ready access to large amounts of liquid capital in order to meet their financial obligations to US farmers and ranchers,” said NCIS president Thomas Zacharias.“These rigorous financial requisites all but demand the involvement of reinsurers to ensure that payments arrive in a timely fashion to farmers for the policies they purchase. And no matter where these companies are based, the indemnity check for the losses goes to an American farmer when disaster strikes.”“Any move to restrict the involvement of foreign-owned reinsurers would have serious repercussions in the market and would put great burden and risk on US taxpayers,” Mr Zacharias added.The NCIS says Wall Street Journal article was misleading on many other fronts.“First, the use of ‘foreign’ is a logical fallacy of ‘they are not like us’,” the NCIS told The Royal Gazette in a statement. “Dollars flowing to the companies are used to deliver the programme in the US. These companies employ 5,000 US loss adjusters, some 13,000-16,000 US agents and several thousand corporate staff and invest in US facilities all across the US.”While the article states, “most federally subsidised crop insurance covers corn, wheat, soybeans and cotton,” the NCIS says it actually provides coverage for those crops as well as everything from fruit, nut and vegetable crops, cattle, hogs, milk, hay, rangeland and even honey bees.The organisation also says the WSJ’s quote that the rising prices of certain crops has “enabled the insurers to raise their premiums” is completely false.“Crop insurance companies have no control over premiums. Premium rates are set by the USDA without input from or consultation with the crop insurance companies,” the NCIS statement said.Mr McGuire agrees. “We basically charge what the government tells us to charge,” he said. “It is an actuarially determined rate that the government establishes.”Companies we spoke to say there’s a lot of cost involved with delivering crop insurance products, settling the claims and complying with federal government regulations. It involves having a number of employees on the ground that go farm by farm, field by field to inspect, underwrite and settle claims.Mr McGuire says it’s not only a misconception that insurance companies set the rates for crop insurance, but also that there’s a guaranteed profit that goes straight to the bottom line of the “foreign companies” named in the WSJ article.“We pay more in agent costs and programme delivery costs in the US than any expense reimbursements we receive from the government for the programme,” Mr McGuire added. “It offsets a portion, but not all, of our cost of delivering insurance to farmers and does not cover any of the capital we have at risk or the claims that we have to pay — that’s a huge misconception out there.”Many of the insurers and reinsurers this newspaper spoke to told us that the whole purpose of the US crop insurance subsidy model is to help farmers by giving them some money to buy their own private insurance each, rather than pay them out huge sums of government assistance when disaster strikes.Some have made the analogy that the US government investing in crop insurance subsidies is like a homeowner investing in homeowners insurance. The homeowner could view it as a waste of money paying for it every year, or as yearly investment that will prevent them from having to pay huge sums of money when a hurricane or tornado tears through their home.And many say the government offering funding through private insurance as opposed to back-end disaster relief is working.“The programme has worked. Last year is a good example where the crop insurance industry paid out billions of dollars in claims related to the drought in Texas, which is among the largest agriculture producing states in the US,” Mr McGuire said. “Texas experienced one of the worst droughts on record, yet you never heard about the government having to provide funding and disaster relief for Texas farmers, precisely because the insurance industry was there and the programme worked as it was designed.”Without crop insurance, many argue there would have been farmer bankruptcies, bank issues and a potentially long-term impact on the productive output of the agriculture industry as a whole — leaving farmers unable to recover and prepare for the next growing season.US farmers produce about $100 billion worth of crops and about $100 billion of livestock each year. While the WSJ claims the US government could save about $1 billion a year by reducing subsidies it pays to those farmers to cover the cost of crop insurance, critics say it’s a small price to pay.“For a single digit billion dollar cost, the US government helps ensure that US agriculture, one of the country’s largest export industries and a critically important provider of the US and global food supply, is protected from disaster in a cost effective and efficient manner,” Mr McGuire said. “This relatively nominal cost provides an enormous safety net protecting economic output that’s well north of $100 billion year in and year out.”