A.M. Best Co. has downgraded the financial strength rating to B++ (Good) from A- (Excellent) and issuer credit rating to “bbb” from “a-” of Farm Bureau Mutual Insurance Co. of Arkansas Inc. (Arkansas Farm Bureau) in Little Rock, Ark. The ratings agency affirmed the financial strength rating of B+ (Good) and issuer credit rating of “bbb-” of Louisiana Farm Bureau Mutual Insurance Co. (Louisiana Farm Bureau) in Baton Rouge, La.
Arkansas Farm Bureau is in the process of merging with Louisiana Farm Bureau, Colorado Farm Bureau Mutual Insurance Co. and South Carolina Farm Bureau Mutual Insurance Co.
The Arkansas Farm Bureau ratings remain under review with the implications revised to developing from negative.
The rating downgrades reflect Arkansas Farm Bureau’s deteriorating stand-alone operating performance characterized by heavy weather-related losses in recent years, which has resulted in a steady erosion of its surplus levels. The company has posted its fourth straight year of underwriting losses and accompanying unfavorable combined ratios. Should these unfavorable trends continue in 2012, additional pressure could be placed on the company’s ratings.
The merger is expected to result in an entity with a significantly greater premium and capital base, along with a wider geographic spread. Thus, the under review status of Arkansas Farm Bureau reflects the potential for changes in its risk-adjusted capitalization along with its business and risk profile.
Louisiana Farm Bureau’s ratings reflect its adequate risk-adjusted capitalization and favorable operating performance in recent years, as the company has benefited from milder weather patterns as well as improved underwriting earnings from re-underwriting initiatives.
The under review status for Louisiana Farm Bureau also reflects the potential that its ratings as a merged entity may be higher than its current ratings as the perceived benefit to the company from the merger is expected to result in an entity with greater financial flexibility, additional resources and a wider geographic spread.
A.M. Best plans to resolve the under review status of both entities upon the completion of the transaction. Pending regulatory and policyholder approvals, the transaction is expected to be completed by year-end 2012.
Source: A.M. Best