AM Best downgrades Louisiana Farm Bureau with negative outlook – Reinsurance News

AM Best has downgraded Louisiana Farm Bureau Mutual Insurance Company credit ratings and assigned them a negative outlook, a move that reflects the company’s deterioration of its key balance sheet strength.

Louisiana Farm Bureau Financial Strength Rating has been downgraded to B++ (Good) from A- (Excellent) and the Long-Term Issuer Credit Rating was downgraded to “bbb” (Good) from “a-” (Excellent).

According to the agency, these ratings reflect the company’s balance sheet strength, which AM Best assesses as strong, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management (ERM).

Yet, the downgrades reflect deterioration in Louisiana Farm Bureau’s key balance sheet strength and operating return metrics, which AM Best notes, “have come in the form of policyholder’s surplus erosion and declining levels of risk-adjusted capitalization.”

It continued: “In addition, operating performance has trended downward over the past few years and was adverse particularly in 2023. The volatility has stemmed predominately from much higher reinsurance costs over the past several years following catastrophe loss activity from Hurricanes Ida, Laura and Delta. Also, inflationary pressures on loss costs and convective storm activity over the past few years has contributed further to the deterioration.

“As a result, the company’s five-year average operating return metrics have fallen materially relative to the personal property industry composite. Surplus has also fallen in four out of the past five years, with the largest decline occurring in 2023.”

Louisiana Farm Bureau has been able to address the adverse trends through stricter underwriting guidelines, and sizable rate increases, which should somewhat offset the material increase in reinsurance costs, according to the agency.

“In an effort to stabilise its operating performance and balance sheet strength metrics, Louisiana Farm Bureau also continues to focus diligently on managing its coastal exposures, property inspections, and refining its underwriting standards,” AM stated.

Concluding: “However, given the severity of loss over the past several years, it remains to be seen whether these initiatives will be proven effective. As a result, there is a negative outlook for the ratings, which encompasses pressure on the company’s ERM building block assessment. If these trends continue, there could be a downward revision in the company’s ERM assessment.”

The news of Louisiana Farm Bureau credit ratings follow AM Best announcement regarding the downgrade of Farm Bureau Mutual Insurance Company of Arkansas (FBMICA) credit ratings.

According to the agency, these downgrades were driven by ongoing severe weather-related losses, which have significantly weakened FBMICA’s policyholder surplus and overall risk-adjusted capitalisation.