OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has downgraded the Financial Strength Rating (FSR) to B++ (Good) from A- (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) to “bbb+” (Good) from “a-” (Excellent) of Texas Farm Bureau Casualty Insurance Company and its affiliates, Farm Bureau County Mutual Insurance Company of Texas, Texas Farm Bureau Mutual Insurance Company and Texas Farm Bureau Underwriters. The outlook of the FSR has been revised to stable from negative while the outlook of the Long-Term ICR is negative. All companies are domiciled in Waco, TX, and are collectively referred to as Texas Farm Bureau Insurance Group (the group).
The Credit Ratings (ratings) reflect Texas Farm Bureau Insurance Group’s balance sheet strength, which AM Best assesses as strong, as well as its marginal operating performance, neutral business profile and appropriate enterprise risk management.
The rating downgrades reflect deterioration in Texas Farm Bureau Insurance Group’s key balance sheet strength metrics through June 2024, which were affected by a 21.5% reduction in its policyholder surplus that resulted in declining levels of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). The corrosion in policyholder surplus was driven by underwriting losses resulting from a higher frequency of severe weather-related events in Texas, particularly in May, as well as the group’s increased reinsurance retention for 2024.
The group’s business profile is neutral, supported by its market penetration as a leading personal lines writer in Texas, along with its broad product offering. In addition, the assessment takes into account the group’s relationship with the Texas Farm Bureau, which enhances customer loyalty and affinity. The group’s marginal operating performance assessment reflects volatility in its underwriting results over the past few years, which adds pressure to its neutral business profile assessment.
In response to these adverse trends, management has put in place a series of initiatives to return the group to profitability and improve balance sheet strength metrics, including significant rate increases, additional focus on exposure management, increased pricing segmentation on the auto line of business and more-refined underwriting guidelines. In addition, management is looking into a potential quota share reinsurance agreement that is expected to somewhat improve risk-adjusted capitalization and underwriting leverage. The weather pattern in Texas has historically been more severe during the first half of the year with the group reporting improved underwriting results in the second half. AM Best has also taken into consideration the execution risks and uncertainty around the timing lag associated with these initiatives.
The negative outlook on the group’s Long-Term ICR reflects pressure on its business profile given observed trends in performance, continued operating volatility and corresponding declines in risk-adjusted capitalization, as well as key balance sheet strength metrics.
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