Ratings: Intrepid, John Deere, So. Carolina, Arkansas & Louisiana Farm Bureaus

June 30, 2011

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Michigan-based Intrepid Insurance Company, both with stable outlooks. The ratings reflect “Intrepid’s solid capitalization, favorable loss ratios, effective management of exposures, the stable run off of its operations and strong synergies with its ultimate parent, Daimler AG,” Best explained. “As part of Daimler AG, Intrepid takes an enterprise-wide approach to managing its risk.” As partial offsetting factors Best cited “Intrepid’s narrow business focus and dependency on Daimler AG’s business.” In addition Best pointed out that Intrepid’s business underwriting results in automotive physical damage is “subject to volatility due to weather-related events impacting vehicle inventories, particularly hail and hurricane-related events.” Intrepid has been in run off since 2010, and Best said it “expects it to remain in run off with its liabilities fully supported, both financially and administratively, by Daimler AG. The run off reflects Daimler AG’s revised global insurance strategy to use Daimler Re Insurance as the vehicle for insurance risk taking and its intent to divest itself of Intrepid.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Iowa-based John Deere Insurance Company (JDIC), both with stable outlooks. The ratings reflect JDIC’s “strong capitalization, management’s history of operations as a managing general agent (MGA) underwriting multiple peril crop insurance since 2005 and the benefits associated with being ultimately owned by Deere & Company, a world leader in providing advanced products and services for agriculture, forestry, construction, lawn and turf care, landscaping and irrigation,” said Best. Deere & Company also “provides financial services worldwide and manufactures and markets engines used in heavy equipment.” In addition best noted that the rating outlook takes into account its view that “JDIC’s business plans are reasonable given management’s operating assumptions along with the financial support of Deere & Company.” As partial offsetting factors Best cited the “execution risk associated with starting up a stand-alone insurance company as well as operational risk associated with the agricultural marketplace where government programs change, and crop prices or weather events could affect business plans. As an MGA, JDIC’s management has been responsible for sales, marketing, underwriting, claims and financial reporting for its fronting carrier, The Insurance Company of the State of Pennsylvania, a company within the American International Group, Inc., organization. The Insurance Company of the State of Pennsylvania benefits from the strong brand name recognition and financial support provided through its association with the Deere & Company organization. As both companies are deeply involved in agricultural businesses, JDIC presents an excellent fit for the overall enterprise.”

A.M. Best Co. has downgraded the financial strength rating to ‘B++’ (Good) from ‘A-‘ (Excellent) and issuer credit ratings to “bbb+” from “a-” of South Carolina Farm Bureau Group and its members, South Carolina Farm Bureau Mutual Insurance Company and Palmetto Casualty Insurance Company. Best has also placed all of the ratings under review with negative implications. Best explained that the rating downgrades for South Carolina Farm Bureau are “primarily due to its unfavorable underwriting performance in recent years, and continuing in 2011, as the occurrence of repeated severe weather events have negatively impacted its capital position. Furthermore, South Carolina is currently in the process of merging with three other mutual entities, Colorado Farm Bureau Mutual Insurance Company, Louisiana Farm Bureau Mutual Insurance Company and Farm Bureau Mutual Insurance Company of Arkansas, Inc.” [See below] Best indicated that, while the “merger is expected to result in an entity with a significantly greater premium and capital base, along with a wider geographic spread, the under review status of South Carolina Farm Bureau also reflects its currently unfavorable operating performance trend.” Best plans to resolve the under review status upon the completion of the transaction. Pending regulatory and policyholder approvals, the transaction is expected to be completed by year-end 2011.

A.M. Best Co. has placed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Farm Bureau Mutual Insurance Company of Arkansas, Inc.under review with negative implications. Best explained that Arkansas Farm Bureau is “currently in the process of merging with three other mutual entities, Colorado Farm Bureau Mutual Insurance Company, Louisiana Farm Bureau Mutual Insurance Company and South Carolina Farm Bureau Mutual Insurance Company.” The rating agency indicated that, while the merger is “expected to result in an entity with a significantly greater premium and capital base, along with a wider geographic spread, the under review status of Arkansas Farm Bureau reflects the potential decline in its risk-adjusted capitalization as a result of the merger, along with its currently unfavorable operating performance trend.” Best plans to resolve the under review status upon completion of the transaction. Pending regulatory and policyholder approvals, the transaction is expected to be completed by year-end 2011.

A.M. Best Co. has placed the financial strength rating of ‘B+’ (Good) and issuer credit rating of “bbb-” of Louisiana Farm Bureau Mutual Insurance Company under review with positive implications. As noted in the above, Louisiana Farm Bureau is currently in the process of merging with three other mutual entities, Farm Bureau Mutual Insurance Company of Arkansas, Inc., Colorado Farm Bureau Mutual Insurance Company and South Carolina Farm Bureau Mutual Insurance Company. Best said the under review status of Louisiana Farm Bureau “reflects the perceived benefit to the company from the merger, which is expected to result in an entity with greater financial flexibility and resources.” Best plans to resolve the under review status upon the completion of the transaction. Pending regulatory and policyholder approvals, the transaction is expected to be completed by year-end 2011.

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