Insurers get downgraded credit ratings

AM Best has downgraded the credit ratings of Kentucky Growers Insurance Company, North Carolina Farm Bureau Mutual Insurance Company, and Farm Bureau Insurance of N.C.

AM Best downgraded the Financial Strength Rating (FSR) of Kentucky Growers Insurance Company from A- (excellent) to B++ (good) and its Long-Term Issuer Credit Rating (ICR) from “a-” (excellent) to “bbb+” (good). The outlook for these ratings has shifted from negative to stable.

The revised ratings considered Kentucky Growers’ robust balance sheet, which AM Best rates as very strong. However, its operating performance is now deemed marginal, in addition to having a limited business profile.

The downgrades were primarily due to the company’s shift in operating performance assessment from adequate to marginal, influenced by the volatility in underwriting and operational results over recent years, mainly due to severe weather events.

The major catastrophe events in 2022 and 2023 significantly increased underwriting losses, leading to a decline in key profitability ratios and aligning its performance with the marginal assessment. The company’s geographic concentration of risk in areas prone to adverse weather also contributed to its volatile performance.

It was noted, meanwhile, that Kentucky Growers has undertaken exposure management and re-underwriting efforts, along with substantial rate adjustments, which are anticipated to stabilize results over time.

Similarly, AM Best has downgraded the FSR of North Carolina Farm Bureau Mutual Insurance Company and Farm Bureau Insurance of N.C., Inc. (collectively known as North Carolina Farm Bureau Insurance Group) from A (excellent) to A- (excellent), and their Long-Term ICR from “a+” (excellent) to “a-” (excellent). Both companies were given a stable outlook for the ratings.

The downgrades reflect the deterioration in North Carolina Farm Bureau’s balance sheet strength and operating return metrics, affected by declining risk-adjusted capitalization.

The group’s operating performance is said to have been inconsistent, with significant underwriting challenges over the past few years, notably in the most recent two-year period and the first quarter of 2024.

According to AM Best, the group’s five-year average operating return metrics lag behind the private passenger standard auto and homeowner’s insurance composite.

Factors such as inflation, weather-related losses, rising reinsurance costs, the elimination of a quota share contract, and regulatory rate restrictions have pressured underwriting results. Management has initiated several corrective actions to restore profitability.

The stable outlooks reflect AM Best’s expectation that North Carolina Farm Bureau will sustain risk-adjusted capitalization levels supportive of the current ratings, bolstered by management’s efforts to stabilize underwriting performance.

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