A.M. Best Downgrades Ratings of Kentucky Growers Insurance Company

A.M. Best Co. has downgraded the financial strength rating to B++ (Good) from A- (Excellent) and issuer credit rating to “bbb” from “a-” of Kentucky Growers Insurance Company (Kentucky Growers) (Lexington, KY). The outlook for both ratings is stable.

The rating actions follow Kentucky Growers’ unprofitable underwriting performance in recent years, resulting in a negative five-year average for pre-tax returns on revenue and total returns on surplus. Kentucky Growers has recorded net underwriting losses in four of the last five years, including in 2011, primarily due to frequent and severe weather-related events. As a result, the company’s five-year average pure loss ratio significantly exceeded the average of the personal property composite, and surplus at year-end 2011 was more than 20% less than at year-end 2007. Kentucky Growers’ single state concentration of risk exposes it to weather-related events as well as to market, regulatory and judicial issues.

Partially offsetting Kentucky Growers’ negative rating factors are its local market presence and long-standing agency relationships. Also, despite the recent underwriting losses, the company’s risk-adjusted capitalization remains favorable and supportive of the ratings. Company initiatives to improve long-term operating performance include rate increases, higher deductibles, a review of insurance-to-value and improved technology.

There could be downward pressure on Kentucky Growers' ratings going forward if the unfavorable operating performance of recent years continues or if risk-adjusted capitalization weakens.

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: “Catastrophe Analysis in A.M. Best Ratings”; “Risk Management and the Rating Process for Insurance Companies”; and “Understanding BCAR for Property/Casualty Insurers.” Best’s Credit Rating Methodology can be found at http://www.ambest.com/ratings/methodology.