AM Best Downgrades Credit Ratings of Farm Mutual Reinsurance Plan Inc.

OLDWICK, N.J.--(BUSINESS WIRE)--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 Mutual Reinsurance Plan Inc. (Farm Mutual Re) (Ontario, Canada). The outlook of these Credit Ratings (ratings) has been revised to stable from negative.

The ratings reflect Farm Mutual Re’s balance sheet strength, which AM Best assesses as strongest, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management.

The rating downgrades reflect a sustained negative trend in Farm Mutual Re’s operating performance, which has resulted in four consecutive years of underwriting losses, which are related to various weather events and five-year combined ratios well above the industry composite.

These losses were driven initially by increased member property per risk and member auto claims in Farm Mutual Re’s core direct distribution segment. However, performance in the company’s broker segment has eroded in recent years, driving underwriting losses in 2021. Operating results have been offset mostly by investment performance that has limited the impact on members’ equity, though there has been a negative impact from unrealized losses on the company’s balance sheet due to higher interest rates and declining equity markets, which has resulted in a net loss in the first quarter of 2022.

AM Best notes that Farm Mutual Re has implemented a detailed strategy focused on its member segment to improve underwriting performance. Results in this segment have begun to demonstrate the impact of these actions taking effect. Additionally, management has highlighted the need to re-focus on its broker segment and has implemented initiatives in order to return to profitability, which include no new business at 1/1 renewals and reduced participation on several contracts, renewed focus on terms and conditions, development of more consistent actuarially driven reporting and analytics, and re-examination of risk appetite. Despite these efforts, underwriting performance through 2022 thus far has not materialized as expected due largely to catastrophe activity in excess of planned catastrophe activity for the year.

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