Credit rating downgraded for Mississippi-based insurance company

Published 10:09 pm Thursday, July 13, 2023

AM Best has downgraded the Financial Strength Rating to A (Excellent) from A+ (Superior) and the Long-Term Issuer Credit Ratings to “a” (Excellent) from “aa-” (Superior) of Southern Farm Bureau Casualty Insurance Company, Colorado Farm Bureau Insurance Company (Colorado Farm Bureau) (both of Ridgeland), Louisiana Farm Bureau Casualty Insurance Company (Baton Rouge, La.) and Mississippi Farm Bureau Casualty Insurance Company (Jackson). These companies are collectively referred to as Southern Farm Bureau. The outlook of these Credit Ratings (ratings) is negative.

The ratings reflect Southern Farm Bureau’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.

The rating downgrades reflect deterioration in the group’s overall risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), and the weakening of key balance sheet strength metrics. In particular, Southern Farm Bureau reported double digit declines to surplus through year-end 2022 and through March 31, 2023, prompting rising underwriting leverage measures.

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As a result of the hardening reinsurance market and increased catastrophe retentions, the group’s net probable maximum loss figures have grown considerably. Additionally, the rating actions consider Southern Farm Bureau’s adverse operating results, which have been impacted by the inherent risks in the current book of business given the group’s catastrophe-exposed risk profile, as well as trends in its personal auto segment. This has strained Southern Farm Bureau’s ability to manage through these trends effectively in alignment with its favorable business profile assessment, resulting in the downgrade to a neutral business profile.

The outlooks consider the group’s unfavorable operating results, which have been driven primarily by increased catastrophe loss activity and inflationary pressures in the personal lines segment. Southern Farm Bureau’s combined ratios have been elevated over the last two years with this trend continuing through the first three months of 2023. While management is addressing the volatility through various underwriting initiatives, a common systems implementation across all six member companies, and sizable rate actions, the effectiveness of these actions and the impact on operating performance has yet to be realized.