OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has revised the outlook for the issuer credit rating (ICR) to stable from negative and affirmed the financial strength rating (FSR) of B++ (Good) and the ICR of “bbb+” of United Farm Family Mutual Insurance Company (UFF Mutual) and its wholly owned subsidiary, UFB Casualty Insurance Company (UFB Casualty). The outlook for the FSR remains stable.
In addition, A.M. Best has affirmed the FSR of A (Excellent) and the ICR of “a” of United Farm Family Life Insurance Company (UFF Life) and the FSR of A- (Excellent) and the ICR of “a-” of United Home Life Insurance Company (UH Life). The outlook on the ratings of the life companies is stable. All companies are domiciled in Indianapolis, IN.
The ratings of UFF Mutual are based on the consolidation of the company with UFB Casualty, which it reinsures with 100% quota share reinsurance. The ratings of these entities reflect their improving trend of underwriting and operating earnings, with underwriting profits posted in 2013 and 2014, supportive risk-adjusted capitalization, sound business profile in Indiana and the concrete steps being taken to reduce catastrophic loss exposure and further improve earnings. These steps include multiple rate increases across all lines, tightening property underwriting guidelines, increasing deductibles and canceling or non-renewing unprofitable or higher risk accounts.
These mitigation initiatives followed unfavorable operating performance by UFF Mutual prior to 2013, primarily driven by sizable underwriting losses. UFF Mutual’s earnings were adversely impacted by more frequent and severe weather-related events during this period, including losses from hail storms, wind and tornadoes throughout Indiana in 2012. However, consistent investment returns and improved underwriting performance have allowed UFF Mutual to generate solid surplus growth in recent years.
Although the stable outlook implies that the prospective performance and risk-adjusted capitalization of UFF Mutual are expected to remain in line with A.M. Best's expectations, the ratings could face renewed pressure if the currently improving operating performance trend were to reverse itself or if risk-adjusted capitalization were to weaken materially.
The ratings of UFF Life recognize its strong risk-adjusted capitalization, consistent profitability and its stable business profile in which less than 25% of total reserves are in interest-sensitive products. These positive rating factors are partially offset by UFF Life’s lower rates of return relative to the industry and its exposure to geographic concentration risk, in which over 80% of direct premiums originate from Indiana.
A.M. Best believes that a positive rating action for UFF Life is unlikely. Factors that could result in a negative rating action include a significant and sustained decline in consolidated risk-adjusted capitalization as measured by Best's Capital Adequacy Ratio (BCAR) model or net operating performance that does not meet A.M. Best's expectations.
UH Life’s ratings reflect its role as a provider of life insurance products outside the core market of Indiana Farm Bureau Incorporated. UH Life is owned by UFF Life and UFF Mutual. The company's ratings also acknowledge its strong risk-adjusted capital position, good credit quality of its investment portfolio and its geographic breadth. Offsetting these factors are UH Life’s modest contribution to the organization's overall operations, fluctuating net income in recent years and modest levels of net premium.
A.M. Best believes that a positive rating action for UH Life is unlikely. Factors that could result in a negative rating action include a change in A.M. Best's view of UH Life's contribution to UFF Life, a significant and sustained decline in risk-adjusted capitalization as measured by BCAR or net operating performance that does not meet A.M. Best's expectations.
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:
• A.M. Best's Liquidity Model for U.S. Life Insurers
• Catastrophe Analysis in A.M. Best Ratings
• Evaluating Non-Insurance Ultimate Parents
• Rating Members of Insurance Groups
• Risk Management and the Rating Process for Insurance Companies
• Understanding BCAR for Property/Casualty Insurers
• Understanding BCAR for U.S. and Canadian Life/Health Insurers
This press release relates to rating(s) that have been published on A.M. 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 visit A.M. Best’s Ratings & Criteria Center.
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