AM Best revises issuer credit rating outlook to negative for Agraria Insurance Company and its subsidiary

OLDWICK, NJ–(BUSINESS WIRE)–AM Best revised the outlook from stable to negative for the issuer’s long-term credit rating (long-term ICR) and affirmed the financial strength rating (FSR) of A (Excellent) and the long-term ICR of “a+” (Excellent) from Agraria Insurance Company (AIC) (Jamestown, ND) and Farmers Union Mutual Insurance Company (Bryant, AR) FSR’s outlook is stable. These companies are collectively referred to as Agraria.

The credit ratings (ratings) reflect the strength of Agaria’s balance sheet, which AM Best rates as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management (ERM) .

The negative long-term ICR outlook reflects Agraria’s deteriorating operating performance to levels that are not as closely aligned with other high-rated carriers in this category. In recent years, the organization has been challenged by weather-related events, which have had a negative impact on results. In June 2021, Agraria suffered the biggest event in the group’s history. Significant losses from this catastrophic storm activity included tornadoes, wind and hail, abnormal winter weather in North Dakota and Arkansas, and severe fires in Arkansas.

Agraria’s underwriting results were further impacted by growth in claims-adjusted expenses due to the aforementioned storm in early June and severe claims from the Arkansas fires, both of which necessitated the reliance on independent claims adjusters, combined with additional expenses related to system implementation and upgrades. These multiple factors led the group to post a combined ratio of 107.4% at the end of 2021. With the exception of 2021, the group’s combined ratio has been below the balance over the last five years, but a slight deterioration had been observed in each of these years. Management has identified corrective actions including selective rate and price increases, tighter underwriting, agency management and the transition of all lines of business to the new policy administration platform, as well as other strategic initiatives aimed at improving long-term profitability.

Agraria’s balance sheet strength continues to be supported by the highest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), surplus growth over each of the five years, adequate liquidity measures and continued favorable development of loss reserves. The group’s business profile remains neutral, supported by its well-established market position in North Dakota and its exclusive distribution channel that engages hundreds of agents in local communities in its operating territory. Despite this position, Agraria’s geographic concentration, primarily in North Dakota, creates vulnerability to weather events that is partially mitigated by a conservative reinsurance program and its continued expansion into South Dakota and Utah. Agraria’s ERM remains appropriate, comprising formal statements of risk tolerance and appetite, which include qualitative and quantitative metrics for all major risks and catastrophe reinsurance to protect the balance sheet and mitigate the impact of longer-term weather events.

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