AM Best

FEBRUARY 27, 2015 02:28 PM (EST)

A.M. Best Revises Outlook to Stable for the COUNTRY Financial Property Casualty Group Members

 Neil Das Gupta
Senior Financial Analyst–P/C
(908) 439-2200, ext. 5206

Brian Spadaccino, CFA
Financial Analyst–L/H
(908) 439-2200, ext. 5803
Christopher Sharkey
Manager, Public Relations
(908) 439-2200, ext. 5159

Jim Peavy
Assistant Vice President, Public Relations
(908) 439-2200, ext. 5644


OLDWICK - FEBRUARY 27, 2015 02:28 PM (EST)
A.M. Best has revised the outlook to stable from negative and affirmed the financial strength rating (FSR) of A+ (Superior) and the issuer credit ratings (ICR) of "aa-" of the members of COUNTRY Financial Property Casualty Group (Bloomington, IL) (PC Group). Concurrently, it has affirmed the FSR of A+ (Superior) and the ICRs of "aa-" of COUNTRY Life Insurance Company and its reinsured subsidiary, COUNTRY Investors Life Assurance Company (both domiciled in Bloomington, IL, and collectively known as COUNTRY Financial Life Group). The outlook for these ratings remains stable. In addition, A.M. Best has affirmed the FSR of A- (Excellent) and the ICR of "a-" of Cotton States Life Insurance Company (Cotton States Life) (Alpharetta, GA). The outlook for these ratings is stable. (See below for a detailed listing of the PC Group members.)

The ratings for the PC Group reflect its improving trend of underwriting and operating earnings since 2012, with underwriting profits posted in 2013 and 2014, supportive risk-adjusted capitalization, strong business profile in Illinois, its product line and geographic diversification and the concrete steps being taken to reduce catastrophic loss exposure and further improve earnings. These steps include instituting significant rate increases, primarily on homeowners and farmowners lines, tightening property underwriting guidelines, increasing deductibles, canceling or non-renewing unprofitable or higher risk accounts, consolidating operations and other expense saving initiatives. The PC Group members operate under intercompany quota share and pooling reinsurance arrangements.

These mitigation initiatives followed unfavorable operating performance by the PC Group prior to 2013, primarily driven by significant underwriting losses. Earnings were adversely impacted by more frequent and severe weather-related events during this period, including losses from hail storms, winter blizzards and tornadoes throughout Southern and Midwestern states in 2011, and Superstorm Sandy and hail storms in Missouri and Illinois in 2012. As a result, five-year average underwriting profitability ratios, though improving, fall below the private passenger standard auto and homeowners' composite. However, consistent investment returns have been able to offset underwriting losses, while realized and unrealized capital gains from favorable equity markets has allowed the PC Group to generate solid surplus growth over the most recent five-year period.

Although the stable outlook implies that the prospective performance and risk-adjusted capitalization of the PC Group are expected to remain in line with A.M. Best's expectations, the ratings could face renewed pressure if the currently improving operating performance trend were to reverse itself, or if risk-adjusted capitalization were to weaken materially.

The ratings for COUNTRY Financial Life Group acknowledge the consolidated strength of these two life companies. The ratings recognize COUNTRY Financial Life Group's strong risk-adjusted and absolute capitalization, positive trend of ordinary life premium growth, its trend of operating gains in recent years and its stable business profile in which less than 30% of total reserves are in interest-sensitive products. These factors are partially offset by spread compression in COUNTRY Financial Life Group's blocks of interest sensitive business with high guaranteed rates, its lower rates of return relative to its peer group and its exposure to geographic concentration risk, in which over 60% of direct premiums originate from Illinois.

Cotton States Life's ratings reflect its majority ownership by COUNTRY Financial Life Group, a risk-adjusted capitalization that supports its insurance and business risks, its recent trend of operating gains, the good overall credit quality of its investment portfolio and minimal interest-sensitive reserves. Partially offsetting these strengths are Cotton States Life's diminished business profile due to the fact that it no longer writes new business and its exposure to geographic concentration risk as the company generates about half of its direct premiums from Georgia.

A.M. Best believes that a positive rating action for COUNTRY Financial Life Group is unlikely over the near to medium term. Factors that could result in a negative rating action include a significant and sustained decline in consolidated risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio (BCAR), or net operating performance that does not meet A.M. Best's expectations.

Positive rating movement for Cotton States Life is unlikely given that the company no longer writes new business. Factors that could lead to a negative rating action include an erosion of capital due to net operating losses, significant dividends being paid to the parent or deterioration, in A.M. Best's view, of the strategic importance of Cotton States Life to its parent, COUNTRY Life Insurance Company.

The FSR of A+ (Superior) and the ICRs of "aa-" have been affirmed for the following COUNTRY Financial Property Casualty Group members:

  • COUNTRY Mutual Insurance Company

  • Middlesex Mutual Assurance Company

  • Holyoke Mutual Insurance Company in Salem

  • COUNTRY Casualty Insurance Company

  • COUNTRY Preferred Insurance Company

  • Modern Service Insurance Company

The FSR of A+ (Superior) and the ICRs of "aa-" have been affirmed for the following COUNTRY Financial Life Group members:

  • COUNTRY Life Insurance Company

  • COUNTRY Investors Life Assurance Company

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

Key insurance criteria reports utilized include:

  • Understanding BCAR for Property/Casualty Insurers

  • Understanding BCAR for U.S. and Canadian Life/Health Insurers

  • A.M. Best's Perspective on Operating Leverage

  • Evaluating Non-Insurance Ultimate Parents

  • Risk Management and the Rating Process for Insurance Companies

  • Catastrophe Analysis in A.M. Best Ratings

  • Rating Members of Insurance Groups

  • The Treatment of Terrorism Risk in the Rating Evaluation

  • A.M. Best's Liquidity Model for U.S. Life Insurers

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.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.

Related Companies

For information about each company, including the Best's Credit Reports, group members (where applicable) and news stories, click on the company name. An additional purchase may be required.