AM Best has downgraded the Financial Strength Rating to B++ (Good) from A- (Excellent) and the Long-Term Issuer Credit Rating to “bbb+” (Good) from “a-” (Excellent) of Farm Bureau Mutual Insurance Company of Arkansas, Inc. (FBMICA) (Little Rock, AR). The outlook of the FSR was revised to stable from negative, while the outlook of the Long-Term ICR is negative.
The Credit Ratings (ratings) reflect FBMICA’s balance sheet strength, which AM Best assesses as very strong, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management.
The rating downgrades reflect ongoing volatility in FBMICA’s operating performance, driven by heavy underwriting losses emanating from wind, hail and tornado activity in Arkansas, coupled with increasing severity of loss costs due to inflation. On the heels of tough weather years in 2020 and 2021, the company incurred its single largest catastrophe event in its history in April, 2022, along with several other smaller storms. As a result, FBMICA has posted underwriting losses in a majority of the last five years and continues to show an upward trend in its combined ratio, ultimately positioning the company within the marginal assessment category. Though the overall effectiveness of these actions remains to be seen, FBMICA continues to actively address its unfavorable performance through rate and deductible increases, ITV programs, exposure management techniques, property inspections and non-renewing historically volatile lines of business.
The negative outlook on the Long-Term ICR considers the impact that persistent storm activity has had on FBMICA’s balance sheet strength metrics, mainly in the form of surplus deterioration. Consequently, underwriting leverage measures have continued to rise and FBMICA’s overall risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), has begun to show a decline from prior years. In the absence of improvement over the near term, the ratings may be further downgraded.
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.
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