RIDGELAND — A.M. Best has revised the outlook to stable from negative and affirmed the financial strength rating of A+ (Superior) and the issuer credit ratings of “aa-” for the members of Southern Farm Bureau Casualty Group (SFB), namely, Southern Farm Bureau Casualty Insurance Company and its wholly owned subsidiary, Louisiana Farm Bureau Casualty Insurance Company. Both companies are headquartered in Ridgeland.
The ratings reflect SFB’s superior capitalization, consistently favorable operating results and positive underwriting performance in the past two years, along with a dominant personal lines market position in its selected operating territories. These positive rating attributes are derived from management’s adherence to sound operating fundamentals, as demonstrated by SFB’s modest underwriting leverage, consistently favorable loss reserve development, conservative investment profile and its well-managed decentralized operations in six states.
SFB also benefits from its sponsorship by the Farm Bureau Federations in each of the six states that comprise its operating territories, which enhances customer loyalty and affinity. The ratings also acknowledge SFB’s significant market penetration as one of the 50 largest U.S. insurance organizations marketing a full complement of insurance products.
The stable outlook reflects management’s numerous strategic initiatives to improve underwriting results and capitalization in 2012 and 2013, following heavy periodic weather-related losses in 2011 and prior years.
These initiatives include reduction of net exposure, increased premiums and higher retention limits on the so-called “loss ratio plans” through which SFB assumes property risks from three associated Farm Bureau companies all located in the southern United States. Historically, these plans incurred heavy underwriting losses due to widespread tornado and hailstorm activity in this region. Partly as a result of these efforts and the somewhat milder weather patterns of the last two years, SFB has posted combined ratios below 100 and nearly $170 million in surplus gain during this period. SFB also maintains a sustainable competitive advantage due to its extensive market knowledge and efficient cost structure, which is derived from its exclusive agency network.
Somewhat offsetting these positive rating attributes is the deterioration in the group’s underwriting performance earlier in the current five-year period, due to both catastrophic weather-related losses as well as unfavorable results in its core automobile book of business, which has tended to underperform. In addition, SFB operates in six states: Arkansas, Colorado, Florida, Louisiana, Mississippi and South Carolina all of which are exposed to frequent and severe weather-related events. However, corrective actions taken by management have resulted in improved operating earnings since mid-2011.
While SFB remains well positioned at its current rating level, a return to poor underwriting performance could place greater pressure on the current ratings/outlook.