A.M. Best Co. said Wednesday it has downgraded the financial strength rating of Virginia Farm Bureau Mutual Insurance Co. in Richmond, Va., and its subsidiaries to B++ (Good) from A- (Excellent).
Additionally, Oldwick, N.J.-based ratings agency A.M. Best said the the issuer credit ratings for Virginia Farm Bureau Mutual Insurance Co. and its subsidiaries were downgraded to “bbb” from “a-“. The outlook for all ratings has been revised to negative from stable.
A.M. Best said these rating actions are due to a significant reduction in Virginia’s consolidated risk-adjusted capitalization as a result of a decrease in policyholders’ surplus and an increase in liabilities — primarily from unfavorable operating performance over the last two years and changes in accounting for pension liabilities in 2012.
These negative rating factors are offset in part by the company’s actions to improve earnings and reduce its exposure to catastrophic loss, according to A.M. Best.
The ratings agency said Virginia Farm Bureau’s risk-adjusted capitalization, as measured by A.M. Best’s “Capital Adequacy Ratio,” has been materially weakened each of the last two years. This is due to a 39.3 percent decline in policyholders’ surplus over that period — which is primarily attributed to material underwriting losses from severe weather-related events.
In addition, surplus has been reduced by an early adoption of statutory accounting rules for pensions and post-retirement benefits, which became effective Jan. 1, 2013. As a result, Virginia’s capitalization and earnings fell significantly below A.M. Best’s expectations.
A.M. Best said management has and continues to take significant actions to reverse the current earnings trend, reduce catastrophic risk exposure and grow surplus. This mainly includes increasing rates, tightening underwriting guidelines and non-renewing certain higher risk or unprofitable accounts.
A.M. Best also said the ratings benefit from the company’s sound business profile in Virginia and its association with the Virginia Farm Bureau Federation, which provides a stable customer base.
However, the ratings agency said, the outlook is negative due to the organization’s weakened financial position, greater susceptibility to shock loss, exposure to Atlantic hurricanes and a trend of more frequent and severe weather patterns in its operating territories.
Source: A.M. Best Company
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