Best’s News & Research Service - March 10, 2015 12:28 PM (EDT)
A.M. Best Downgrades Ratings of South Carolina Farm Bureau Group Members
Oldwick //BestWire// - A.M. Best has downgraded the financial strength rating (FSR) to B+ (Good) from B++ (Good) and the issuer credit ratings (ICR) to "bbb-" from "bbb" of South Carolina Farm Bureau Mutual Insurance Company and Palmetto Casualty Insurance Company (together known as South Carolina Farm Bureau Group). The outlook for all ratings remains negative. Both companies are domiciled in Cayce-West Columbia, SC.
The ratings downgrades reflect the South Carolina Farm Bureau Group's continued trend of unfavorable operating and underwriting performance over the latest five-year period. This has been primarily due to repeated occurrences of frequent and severe weather events, which have produced significant underwriting losses that have eroded the group's capital position. As a result, five-year average pre-tax returns on revenue and equity are negative and compare unfavorably with the personal property composite.
The group maintains a sustainable competitive advantage derived from its exclusive agency force and local market focus. Furthermore, the group benefits from its sponsorship by the South Carolina Farm Bureau Federation, which enhances its customer loyalty and affinity. It also benefits from its strategic relationship with Southern Farm Bureau Casualty Insurance Company (SFBCIC), which, as a leading personal lines insurance organization, provides the group with additional reinsurance protection against frequent loss events and is a source for additional capital.
Although management has been engaged in the process of re-underwriting its book of business, including taking needed rate increases, reducing concentrations in catastrophe-prone areas and non-renewing unprofitable business, the ratings could face additional negative pressure if there is a continuation of adverse operating performance and further weakening in risk-adjusted capitalization. Removal of the negative outlook is contingent upon the company's ability to improve and sustain operating and underwriting results while increasing overall risk-adjusted capitalization.
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 include:
- Understanding BCAR for Property/Casualty Insurers
- Risk Management and the Rating Process for Insurance Companies
- Catastrophe Analysis in A.M. Best Ratings
- Rating Members of Insurance Groups
- Evaluating U.S. Surplus Notes
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