APRIL 20, 2012 12:00 AM (EDT)
A.M. Best Affirms Ratings of North Carolina Farm Bureau Group and Its Members; Revises Outlook to Negative for ICRs
Senior Financial Analyst
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Assistant Vice President
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Senior Manager, Public Relations
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Assistant Vice President, Public Relations
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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - APRIL 20, 2012 12:00 AM (EDT)
A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and affirmed the issuer credit ratings of a+ of North Carolina Farm Bureau Group (North Carolina Farm Bureau) and its members, North Carolina Farm Bureau Mutual Insurance Company and Farm Bureau Insurance Company of North Carolina, Inc. The outlook for the ICRs has been revised to negative from stable, while the outlook for the FSR is stable. All companies are domiciled in Raleigh, NC.
The rating affirmations reflect North Carolina Farm Bureaus solid risk-adjusted capitalization and historically favorable operating earnings. The ratings also recognize the groups strong risk management practices and market leadership position as an insurer of farm-related business in North Carolina. These positive rating factors are reflective of managements disciplined underwriting approach and conservative investment strategy.
North Carolina Farm Bureaus ongoing risk management initiatives are reflected in its ratings and are designed to reduce catastrophe exposure and drive more consistent underwriting performance. Furthermore, North Carolina Farm Bureau maintains a cost-effective employee agency network, a long-standing local market presence, as well as derives benefits from the sponsorship provided by the North Carolina Farm Bureau Federation, which facilitates marketing and government relations efforts and enhances customer loyalty and affinity.
Partially offsetting these positive rating factors are North Carolina Farm Bureaus geographic concentration of risk, which exposes it to weather-related events, as well as risks from changes in the economic, judicial and regulatory environment. The groups exposure to weather-related events was evident in 2011 when above average claims caused by wind, hail, tornadoes and Hurricane Irene resulted in a significant underwriting loss and a surplus decline of approximately 23%. Prior to 2011, North Carolina Farm Bureaus underwriting performance had been better than the composite average.
The negative outlook assigned to the ICR reflects North Carolina Farm Bureaus reduced surplus, weakened risk-adjusted capitalization and increased dependence on reinsurance over the near term. The outlook further considers the current volatile economic conditions that may have a material effect on the groups net investment income and reinsurance costs, which have the potential to put additional pressure on North Carolina Farm Bureaus pre-tax operating returns.
Factors that could result in future negative rating actions include a continued deterioration in North Carolina Farm Bureaus underwriting performance or additional erosion of its capital base. A key rating trigger that could result in the removal of the negative outlook is an improvement in the groups underwriting performance over the mid term while maintaining strong risk-adjusted capitalization.
The methodology used in determining these ratings is Bests Credit Rating Methodology, which provides a comprehensive explanation of A.M. Bests rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: Risk Management and the Rating Process for Insurance Companies; Understanding BCAR for Property/Casualty Insurers; Rating Members of Insurance Groups; and Catastrophe Analysis in A.M. Best Ratings. Bests Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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