OLDWICK, NJ–(BUSINESS WIRE)–AM Best revised the outlook from stable to negative and affirmed the financial strength rating of A- (Excellent) and the issuer’s long-term credit rating (long-term ICR) of “a-” (Excellent) of the Farm Workers Mutual Automobile Insurance Company (Ag Workers) (Forth Worth, TX).
The credit ratings (ratings) reflect the strength of Ag Workers’ balance sheet, which AM Best rates as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).
The revised to negative outlook reflects key measures of balance sheet strength that compare unfavorably over the past five years with the farmworker peer group with a similar long-term balance sheet strength baseline ICR rating. These parameters include (but are not necessarily limited to) policyholder surplus growth, underwriting leverages and loss reserve development trends.
These unfavorable rating attributes are further exacerbated by a deterioration in the company’s risk-adjusted capitalization compared to the prior year, primarily due to a decline in policyholder surplus resulting from higher underwriting losses. In addition, the policyholder dividend payout structure has had an inhibiting effect on the growth of long-term policyholder surplus.
Ag Workers’ adequate operating performance is considered by earnings before policyholder dividends, for which underwriting performance is in line with industry composite benchmarks. However, the policyholder dividend payout structure limits overall underwriting performance and negatively impacts pre-tax return on revenue and equity measures. The limited assessment of Ag Workers’ business profile is largely driven by the geographic concentration of its products in Texas, which exposes the results to frequent and severe weather events, as well as potential legal, economic and , competitive and regulatory. AM Best rates agricultural worker ERM as appropriate because its risk management capabilities are appropriately proportionate to the complexity of the business and align well with the company’s risk profile.
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