AM Best Revises Issuer Credit Rating Outlook to Negative for Members of North Carolina Farm Bureau Insurance Group

OLDWICK, N.J.--(BUSINESS WIRE)--
AM Best has revised the outlook for the Long-Term Issuer Credit Ratings (Long-Term ICR) to negative from stable and affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term ICR of “a+” (Excellent) of North Carolina Farm Bureau Insurance Group (North Carolina Farm Bureau) members, North Carolina Farm Bureau Mutual Insurance Company and Farm Bureau Insurance of N.C., Inc. The outlook of the FSR is stable. Both companies are domiciled in Raleigh, NC.

The Credit Ratings (ratings) reflect North Carolina Farm Bureau’s balance sheet strength, which AM Best assesses as strongest, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).

North Carolina Farm Bureau’s risk-adjusted capitalization weakened in 2022 due to underwriting losses, which were the group’s largest in 10 years and drove a negative pre-tax operating loss and overall net loss. Also contributing to the decline in risk-adjusted capitalization were changes to the group’s reinsurance program that resulted in higher net retention in comparison with the prior year, as well as the payment of a $30 million surplus note principal, which contributed to the modest surplus decline for the year. However, despite the deterioration in risk-adjusted capitalization, the group's balance sheet assessment remains at the strongest level, reflective of its favorable underwriting leverage compared with the private passenger auto and homeowners composite measures, consistently favorable reserve development, strong liquidity measures and conservative investment portfolio that produces consistent levels of net investment income. Those positive factors are partially offset by the group's elevated common stock leverage and its somewhat elevated reinsurance dependence as a single-state property writer with coastal hurricane exposure.

Although North Carolina Farm Bureau reported an operating loss, resulting from underwriting losses, as reflected by a 2022 combined ratio of 112.6, its highest in five years, the group’s operating performance assessment remains as adequate given its historical reporting of adequate results. The underwriting loss was due to a confluence of events caused by increased storm activity from five separate events involving wind, hail and/or tornadoes, as well as Hurricane Ian in late September and a winter freeze in late December; record levels of inflation due to supply chain issues; increased material and labor costs; and an increase in the group’s quota share retention.

The business profile assessment reflects the group’s strong market position across multiple lines, as well as its extensive distribution network and ongoing relationship with the North Carolina Farm Bureau Federation, which is offset by the geographic and product concentration the group has as a property writer in a hurricane-prone state. Finally, North Carolina Farm Bureau’s ERM practices remain appropriate and in line with its risk profile, with its focus on exposure management and pursuing rate adequacy.

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.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2023 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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Kevin Dorsey
Senior Financial Analyst

+1 908 439 2200, ext. 5401

[email protected]

Richard Attanasio
Senior Director

+1 908 439 2200, ext. 5432

[email protected]

Christopher Sharkey
Associate Director, Public Relations

+1 908 439 2200, ext. 5159

[email protected]

Al Slavin
Senior Public Relations Specialist

+1 908 439 2200, ext. 5098

[email protected]

Source: AM Best