AM Best


A.M. Best Revises Outlooks to Positive for American Agricultural Insurance Company


CONTACTS:

Neil Das Gupta
Senior Financial Analyst
(908) 439-2200, ext. 5206
neil.dasgupta@ambest.com

Joseph A. Burtone
Assistant Vice President
(908) 439-2200, ext. 5125
joseph.burtone@ambest.com
Christopher Sharkey
Manager, Public Relations
(908) 439-2200, ext. 5159
christopher.sharkey@ambest.com

Jim Peavy
Assistant Vice President, Public Relations
(908) 439-2200, ext. 5644
james.peavy@ambest.com

FOR IMMEDIATE RELEASE

OLDWICK - MAY 12, 2015 03:10 PM (EDT)
A.M. Best has revised the outlooks to positive from stable and affirmed the financial strength rating of A- (Excellent) and the issuer credit rating of "a-" of American Agricultural Insurance Company (AAIC) (Indianapolis, IN).

The revision of the outlooks to positive reflects AAIC's steadily improving operating performance as reflected by three consecutive years of operating profitability driven by significantly improved underwriting results. These results are primarily due to aggressive risk management initiatives, which included a substantial restructuring of AAIC's overall book of business and somewhat milder weather patterns. Specifically, AAIC has sharply reduced its previously significant property catastrophe exposure, particularly in its niche of reinsuring the carriers associated with the American Farm Bureau Federation (Farm Bureau). The company has also focused on growing the longer-tailed and non-catastrophe prone casualty segment primarily underwritten in its broker-assumed segment, which has shown sustained improvement in profitability over the past three years despite historically soft market conditions. Furthermore, AAIC's overall risk-adjusted capitalization continued to strengthen as surplus at year-end 2014 reached its highest level in the past five years. In addition, AAIC maintains a favorable expense structure due in part to its unique market position as the primary reinsurer to the Farm Bureau insurance companies.

Partially offsetting these positive rating factors are AAIC's volatile operating and underwriting results in the earlier part of that five-year period. As a result, its five-year average pre-tax returns on revenue and surplus compare unfavorably with the reinsurance composite. However, AAIC's unfavorable underwriting and operating performance relative to its peers is primarily due to historically high levels of losses in 2011 from frequent and severe weather events both in the United States and abroad. As a result, management restructured its book of business, which resulted in a substantial de-risking.

In future rating cycles, a sustained improvement in operating results, along with maintenance of favorable risk-adjusted capitalization, could lead to further positive rating action in the form of a ratings upgrade. Factors that could result in negative rating actions include a return to unfavorable underwriting performance and/or a significant erosion of its capital base.

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. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology .

Key insurance criteria reports utilized include:


  • Understanding BCAR for Property/Casualty Insurers

  • Risk Management and the Rating Process for Insurance Companies

  • Catastrophe Analysis in A.M. Best Ratings

  • Rating Members of Insurance Groups

  • Evaluating U.S. Surplus Notes

This press release relates to rating(s) that have been published on A.M. 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 visit A.M. Best's Ratings & Criteria Center.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.


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