OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has revised the outlook to negative from stable for the Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term ICR of “a+” (Excellent) of Agraria Insurance Company (AIC) (Jamestown, ND) and Farmers Union Mutual Insurance Company (Bryant, AR) The outlook of the FSR is stable. These companies are collectively referred to as Agraria.
The Credit Ratings (ratings) reflect Agaria’s balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The negative Long-Term ICR outlook reflects deterioration in Agraria’s operating performance to levels that are not as closely aligned with other rated carriers assessed at the strong level in this category. In recent years, the organization has been challenged by weather-related events, which have negatively impacted results. In June 2021, Agraria suffered from the single largest event in the group’s history. Significant losses from this catastrophic storm activity included tornadoes, wind and hail, abnormal winter weather in North Dakota and Arkansas, and severe fire losses in Arkansas.
Agraria’s underwriting results were further impacted by growth in loss adjusted expenses due to the aforementioned early June storm and severe fire losses in Arkansas, both of which required the use of independent adjusters, combined with additional expenses related to systems implementation and upgrades. These multiple factors led to the group posting a 107.4% combined ratio for year-end 2021. With the exception of 2021, the group’s combined ratio has been below break-even over the past five years, but slight deterioration had been reported in each of those years. Management has outlined corrective measures, which include selective rate increases and pricing, stricter underwriting, agency management and transition of all lines of business to the new policy administration platform, as well as other strategic initiatives aimed toward improving long term profitability.
Agraria’s balance sheet strength continues to be supported by the strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), surplus growth in each of the past five years, adequate liquidity metrics and consistently favorable loss reserve development. The group’s business profile remains neutral, supported by its well-established market position in North Dakota and exclusive agency distribution channel that contracts hundreds of agents in local communities across its operating territory. Despite this position, Agraria’s geographic concentration, primarily in North Dakota, creates susceptibility to weather-related events that is partially mitigated through a prudent reinsurance program and its continued expansion into South Dakota and Utah. Agraria’s ERM remains appropriate, inclusive of formal risk tolerance and appetite statements, which include both qualitative and quantitative parameters for all major risks and catastrophe reinsurance intended to protect the balance sheet and mitigate the impact of longer-tail weather-events.
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