Outlooks for American Agricultural Insurance Positive

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 Co. (AAIC) of Indianapolis, Ind.

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.

Source: A.M. Best

Topics Trends Agribusiness