AM Best Downgrades Credit Ratings of Germania Farm Mutual Insurance Association and Core Subsidiaries

OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has downgraded the Financial Strength Rating (FSR) to B (Fair) from A- (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “bb+” (Fair) from “a-” (Excellent) of Germania Farm Mutual Insurance Association and its subsidiaries: Germania Fire & Casualty Company, Germania Insurance Company and Germania Select Insurance Company. Collectively, these companies comprise Germania Mutual Group (Germania). The outlook of the FSR has been revised to stable from negative while the outlook of the Long-Term ICR is negative.

Concurrently, AM Best has downgraded the FSR to B (Fair) from B++ (Good) and the Long-Term ICR to bb+ (Fair) from “bbb+” (Good) of Germania Property & Casualty Insurance Company (GPC), a wholly owned subsidiary of Germania Farm Mutual Insurance Association. The outlook of the FSR is stable and the outlook of the Long-Term ICR is negative.

Additionally, AM Best has downgraded the FSR to B (Fair) from B++ (Good) and the Long-Term ICR to bb+ (Fair) from “bbb+” (Good) of Germania Life Insurance Company (Germania Life). The outlook of the FSR is stable and the outlook of the Long-Term ICR is negative. All companies are domiciled in Brenham, TX.

The Credit Ratings (ratings) of Germania reflect the group’s balance sheet strength, which AM Best assesses as adequate, as well as its marginal operating performance, limited business profile and marginal enterprise risk management (ERM).

The assessments of Germania’s the balance sheet strength and operating performance were revised downward, reflecting significant erosion in the group’s policyholder surplus, weakening balance sheet metrics and corresponding decline in the group’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). This followed sizable underwriting losses in the second quarter of 2023 due to sharply higher-than-normal catastrophe activity, as well as inflation-driven increases in loss costs. As a result, operating losses and the group’s combined ratio each reached a historical high as of June 2023 and policyholder surplus declined by over 50%. Germania’s business profile assessment reflects the group’s geographic and product concentration of primarily residential risks in a catastrophe-prone state. Furthermore, there is a heightened level of execution risk as the group undertakes strategic business initiatives to address the deterioration in its operating performance and balance sheet strength.

The continuation of the negative outlook on these Long-Term ICRs reflects AM Best’s ongoing concerns with Germania’s underwriting exposures during a season of heightened catastrophe loss activity and the group’s ability to achieve improved operating performance and meaningfully improved balance sheet strength in the immediate term. AM Best will continue to review progress on the group’s strategic business initiatives, including pricing and other actions undertaken, and prospective reinsurance protection and how these factors may ultimately impact its risk-adjusted capitalization.

Negative rating actions could occur if Germania’s strategic initiatives fail to improve operating performance or if there were a further decline in the overall balance sheet strength assessment.

The ratings of GPC reflect its balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile and marginal enterprise risk management.

The ratings of Germania Life reflect its balance sheet strength, which AM Best assesses as strong, as well as its marginal operating performance, limited business profile and marginal enterprise risk management.

The rating downgrades of GPC and Germania Life were driven by the negative rating action taken on Germania.

This press release relates to Credit Ratings that have been published on AM 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 see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

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