OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of A- (Excellent) and Long-Term Issuer Credit Rating (Long-Term ICR) of “a-” (Excellent) of Agricultural Workers Mutual Auto Insurance Company (Ag Workers) (Forth Worth, TX).
The Credit Ratings (ratings) reflect Ag Workers’ balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).
The revised outlooks to negative reflect key metrics of balance sheet strength that compare unfavorably over the past five years with Ag Workers’ peer group with a similar balance sheet strength baseline Long-Term ICR assessment. Such metrics include (but are not necessarily limited to) policyholders’ surplus growth, underwriting leverages and loss reserve development trends.
These unfavorable rating attributes are exacerbated further by a deterioration of the company’s risk-adjusted capitalization relative to the previous year, which was driven primarily by a decline in policyholders’ surplus resulting from rising underwriting loss. Further, the payment structure of policyholder dividends has had a suppressive effect on policyholders’ surplus growth over the longer term.
Ag Workers’ adequate operating performance is viewed by results before policyholder dividends, for which underwriting performance is in line with industry composite benchmarks. However, the policyholder dividend payment structure constrains overall underwriting performance and negatively impacts pre-tax return on revenue and equity measures. Ag Workers’ limited business profile assessment is driven largely by its product focus concentrated geographically in Texas, which exposes results to frequent and severe weather-related events, as well as potential judicial, economic, competitive and regulatory challenges. AM Best assesses Ag Workers’ ERM as appropriate, as its risk management capabilities are appropriately commensurate with the complexity of the business, and align well with the company’s risk profile.
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