A.M. Best Downgrades Ratings of RVOS Farm Mutual Insurance Group and Its Members

A.M. Best Co. has downgraded the financial strength rating to B+ (Good) from A- (Excellent) and the issuer credit ratings to “bbb-” from “a-” of RVOS Farm Mutual Insurance Group (RVOS) and its member companies, RVOS Farm Mutual Insurance Company and Priority One Insurance Company. The outlook for all ratings is negative. All companies are domiciled in Temple, TX.

The rating actions follow RVOS’ continued unprofitable underwriting performance, resulting in an unfavorable trend in the group’s risk-adjusted capital position, which remains adequate relative to its current rating level. The group has experienced significant losses attributable to weather-related events in recent years in Texas and an increased frequency and severity of fire related losses, particularly from the Bastrop County wildfire in September 2011. In addition, volatility in the equity markets continues to contribute to fluctuations in RVOS’ surplus position, as the group maintains a relatively high equity investment leverage position. However, management continues to focus on RVOS’ competitive position through rate increases, enhanced underwriting efficiencies, reviews of geographic concentrations and new technology initiatives with deeper pricing segmentation.

A.M. Best has maintained the negative outlook on the ratings. In future rating cycles, since RVOS is materially exposed to natural catastrophe risks, in the event that frequent and/or severe weather-related events were to continue to occur and further negatively affect RVOS’ risk-adjusted capital position and underwriting performance, further downward rating pressure would likely occur.

The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include “Risk Management and the Rating Process for Insurance Companies” and “Understanding BCAR for Property/Casualty Insurers.” Methodologies can be found at http://www.ambest.com/ratings/methodology.