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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 Bureau’s solid risk-adjusted capitalization and historically favorable operating earnings. The ratings also recognize the group’s 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 management’s disciplined underwriting approach and conservative investment strategy.
North Carolina Farm Bureau’s 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 Bureau’s 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 group’s 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 Bureau’s underwriting performance had been better than the composite average.
The negative outlook assigned to the ICR reflects North Carolina Farm Bureau’s 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 group’s net investment income and reinsurance costs, which have the potential to put additional pressure on North Carolina Farm Bureau’s pre-tax operating returns.
Factors that could result in future negative rating actions include a continued deterioration in North Carolina Farm Bureau’s 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 group’s underwriting performance over the mid term while maintaining strong 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. 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.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source.