APRIL 05, 2016 03:35:59 Eastern Daylight Time
A.M. Best Assigns Ratings to Farm Mutual Reinsurance Plan Inc.
FOR IMMEDIATE RELEASE
OLDWICK - APRIL 05, 2016 03:35:59 Eastern Daylight Time
The ratings reflect FMRP’s excellent risk-adjusted capitalization, significant improvement in operating profitability during the most recent five-year period, and strong market position operating as a reinsurer of farm mutuals in Canada.
Partially offsetting these positive rating factors are the concentration of mutual company clientele within the Ontario province, which exposes results to potential variability in operating performance due to weather-related losses, and the impact of lower interest rates on FMRP’s investment portfolio, which reduced net investment income in 2015.
The positive rating factors reflect FMRP’s significant market expertise writing farm business since inception in 1959. Through its long-standing direct distribution segment, FMRP is the exclusive reinsurer of 53 insurance companies operating in six provinces across Canada, 40 of which are statutorily required to reinsure with FMRP; this has supported high retention rates over the long term. FMRP achieves some premium diversification through its broker distribution segment in which the company writes crop reinsurance, primarily within Canada, and property reinsurance, primarily within the United States. The strong profitability during the recent five-year period reflects management’s initiatives to improve results, inclusive of the application of improved pricing methodologies, the commitment to maintain pricing discipline, and a strong reinsurance program inclusive of aggregate reinsurance, which should help to insulate earnings from the potential accumulation of natural catastrophe losses.
The negative rating factors reflect the potential earnings impact of weather-related losses given the natural catastrophe risks inherent within the company’s reinsurance-oriented book of business, somewhat mitigated by the aforementioned reinsurance program that protects both earnings and policyholders’ surplus. The 2015 decline in net investment income reflects the impact of fair value adjustments occurring on FMRP’s preferred and common share holdings, both of which reduced net investment income following a reduction in key interest rate.
Positive rating action could occur if operating results improve and can be sustained at a level that performs in line with higher rated peers. Alternatively, the ratings could be impacted by a weakening in underwriting performance or overall profitability to a level that trails similarly rated peers, or from a weakening in overall risk-adjusted capitalization that no longer supports the rating.
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 see A.M. Best’s Recent Rating Activity web page.
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