OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has revised the outlook to stable from negative and affirmed the financial strength rating of B- (Fair) and the issuer credit ratings of “bb-” of the members of Oklahoma Farm Bureau Group: Oklahoma Farm Bureau Mutual Insurance Company and its wholly owned subsidiary, AgSecurity Insurance Company, collectively referred to as Oklahoma Farm Bureau. All companies are domiciled in Oklahoma City, OK.
The revised outlook to stable from negative reflects Oklahoma Farm Bureau’s improved underwriting results and operating earnings in recent years along with adequate risk-adjusted capitalization. Despite the continuation of frequent and severe weather-related events in its operating state, Oklahoma Farm Bureau’s underwriting results have significantly improved in recent years, and in 2014, the group will report its first underwriting profit in the past five years. These results are reflective of management’s ongoing initiatives, which include strengthening of the reinsurance program, significant rate increases, increased deductibles, stricter underwriting guidelines, reduced exposure in catastrophe-prone areas and a de-emphasis in its property book of business, as well as improved spread of its overall risk. The declining premium volume, along with surplus growth in 2013 and 2014 also has resulted in increased overall capitalization. In addition, other income remains positive and when combined with generally favorable capital returns, has partially mitigated underwriting losses and declining net investment income over the past five years. Lastly, Oklahoma Farm Bureau maintains a conservative investment portfolio and continues to report favorable reserve development on an accident and calendar year basis.
Oklahoma Farm Bureau’s negative rating factors include volatile operating results and surplus loss over the past five years, largely due to significant underwriting losses and declining net investment income. With the exception of 2014, Oklahoma Farm Bureau reported underwriting losses in four of the past five years due to frequent and severe weather events, mainly windstorms and tornados. Consequently, the group’s five-year average combined ratio and pre-tax returns on revenue and equity compare unfavorably with the industry composite norms. In addition to underwriting losses, Oklahoma Farm Bureau’s net investment income has declined over the past five years due to recently increased investment expenses and the record low interest rate environment. Finally, as a single state writer with a geographic concentration of risk in the state of Oklahoma, underwriting results remain exposed to frequent and severe weather-related events, as well as judicial, economic and legislative concerns.
Negative rating actions could occur if Oklahoma Farm Bureau’s operating performance significantly falters or if there is material deterioration in its capitalization. Any positive rating movement is contingent upon the group’s ability to report consistent and sustained operating profitably while maintaining supportive risk-adjusted capitalization.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Key insurance criteria reports utilized:
- Catastrophe Analysis in A.M. Best Ratings
- Evaluating U.S. Surplus Notes
- Rating Members of Insurance Groups
- Risk Management and the Rating Process for Insurance Companies
- Understanding BCAR for Property/Casualty Insurers
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