A decline in surplus, reserve adequacy trending lower, underwriting losses driven by storms and hurricanes, and a generally unsettled Florida P&C insurance market environment, all of which have contributed to a downgrade for Florida Farm Bureau, according to AM Best.The rating agency moved on the credit ratings of Florida Farm Bureau Group’s members at the end of last week, raising issues that are affecting almost all property and casualty insurance companies operating in the state of Florida.While legislative efforts had hoped to reverse fortunes in Florida, with those efforts failing to get passage again during the just-ended legislative session, Florida’s P&C insurers now face a reinsurance renewal where costs are going to be much higher and a 2022 hurricane season that could pose all sorts of additional challenges, with none of the core issues seemingly resolved yet.AM Best downgraded the Financial Strength Rating (FSR) to B++ (Good) from A- (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) to “bbb+” (Good) from “a-” (Excellent) of Florida Farm Bureau Casualty Insurance Company and also its fully-backed by reinsurance subsidiary, Florida Farm Bureau General Insurance Company, which are together known as Florida Farm Bureau Group.

The outlook on the Financial Strength Rating has now been revised to stable from negative, suggesting it won’t be upgraded without improvement, while the outlook of the Long-Term Issuer Credit Ratings remains negative for the Gainesville, Florida domiciled carriers.The rating actions were taken after the 2021 results for the Florida Farm Bureau, which AM Best notes laid bare a 28% surplus decline from the previous year and a cumulative decline of 35% over the most recent five-year period.Highlighting issues facing the insurer, AM Best notes that the group’s reserve adequacy has been trending unfavorably across all major lines of business.

Adding to this, AM Best said the deterioration continues to be driven by underwriting losses related to storms and hurricane activity, as well as ongoing pressure in the auto line of business.On top of this, AM Best said the insurers’, “operations remain influenced by the unsettled Florida operating environment.” The rating agency did cite actions being taken by Florida Farm Bureau to turn the trajectory around.But AM Best cautioned that the company has implemented numerous mitigation efforts, including strengthening its reserves, increasing its rates, non-renewing risks deemed less desiravle, halting new business in some lines of coverage and managing the assignment of benefits issue, “the ultimate effectiveness of these initiatives remains to be seen.” AM Best said the negative ICR outlook represents, “continued deterioration in operating performance due to the level of underwriting loss and corresponding surplus declines,” and also the fact that there remains, “pressure on the group’s ERM assessment as results have yet to improve substantially despite corrective actions.” AM Best expects the operating results will improve with the actions taken, but this is another case of the challenges faced in the Florida P&C insurance market getting so acute that an insurers business profile has been degraded by market effects, losses and loss creep, as well as the litigation environment.

With weather and hurricanes the major risk for Florida Farm Bureau, AM Best also said that much of its risk management efforts to stem the issues it has faced have been focused on efforts to mitigate storm exposure through a comprehensive catastrophe reinsurance program., unless there is a rushed through set of legislative reforms enacted.Right now, that doesn’t seem all that likely, but we understand there are discussions at high-levels in the Florida legislature about what might be possible.

This case of Florida Farm Bureau highlights the issue, as the pressures it has felt and that have ultimately led to its rating downgrade, are affecting many carriers and those with declining surplus may find themselves exposed to rating downgrades too...

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