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FOR IMMEDIATE RELEASE
OLDWICK - APRIL 08, 2015 10:29 AM (EDT)
A.M. Best has downgraded the financial strength rating to A- (Excellent) from A (Excellent) and the issuer credit rating to "a-"from "a" of Farmers Mutual Hail Insurance Company of Iowa (FMH) (West Des Moines, IA). Both ratings have been removed from under review with negative implications and assigned a stable outlook.
The rating downgrade reflects FMH's sizeable underwriting losses recorded since 2012, which have led to weak return measures and surplus volatility resulting in a slightly diminished, albeit still strong, level of risk- adjusted capitalization. FMH's results were negatively impacted in 2014 and 2013 by a drop in commodity prices, while 2012 saw the worst drought conditions in the last 25 years. Results have also been impacted by hail-related losses. Therefore, results are subject to volatility from weather and commodity price swings; factors that are difficult to mitigate. In addition, reductions in federal reimbursements paid to multi-peril crop insurance writers have led to increased expense ratios in recent years. Consequently, expense ratios are expected to remain somewhat above historical norms.
The current rating reflects FMH's supportive capitalization, its expanded market presence following its recent acquisition of John Deere Insurance Company (JDIC) (Johnston, IA) from Deere & Company and the added balance sheet protection provided through an aggregate stop-loss reinsurance treaty. The ratings also recognize management's knowledge and expertise in its highly specialized lines of business that cater to the insurance needs of farmers. Prior to the acquisition of JDIC on March 31, 2015, FMH increased its reinsurance protection via an expanded quota share and issued a $60 million surplus note. Both have helped FMH meet its expanded capital needs on a current and prospective basis.
The acquisition of JDIC has diversified FMH's book of business in terms of product (i.e., corn, soybean) and geography. This improved spread of risk is a key component of the 2015 revised underwriting criteria, which is expected to help stabilize the book's underwriting outcomes. The outlook reflects FMH's adequate capitalization and expectation that management's revised underwriting criteria will minimize the variability in underwriting results going forward.
The ratings and outlook could be negatively impacted should operating results not meet projected outcomes.
The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Key insurance criteria reports utilized:
This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best's Ratings & Criteria Center .
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