AM Best has downgraded the Financial Strength Rating to B++ (Good) from A- (Excellent) and the Long-Term Issuer Credit Rating to “bbb” (Good) from “a-” (Excellent) of Louisiana Farm Bureau Mutual Insurance Company (Louisiana Farm Bureau) (Baton Rouge, LA). The outlook of these Credit Ratings (ratings) is negative.

The ratings reflect Louisiana Farm Bureau’s balance sheet strength, which AM Best assesses as strong, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management (ERM).

The rating downgrades reflect deterioration in Louisiana Farm Bureau’s key balance sheet strength and operating return metrics, which have come in the form of policyholder’s surplus erosion and declining levels of risk-adjusted capitalization. In addition, operating performance has trended downward over the past few years and was adverse particularly in 2023. The volatility has stemmed predominately from much higher reinsurance costs over the past several years following catastrophe loss activity from Hurricanes Ida, Laura and Delta. Also, inflationary pressures on loss costs and convective storm activity over the past few years has contributed further to the deterioration. As a result, the company’s five-year average operating return metrics have fallen materially relative to the personal property industry composite. Surplus has also fallen in four out of the past five years, with the largest decline occurring in 2023.

Management has addressed the adverse trends through sizable rate increases, and stricter underwriting guidelines. These rate increases should somewhat offset the material increase in reinsurance costs. In an effort to stabilize its operating performance and balance sheet strength metrics, Louisiana Farm Bureau also continues to focus diligently on managing its coastal exposures, property inspections, and refining its underwriting standards. However, given the severity of loss over the past several years, it remains to be seen whether these initiatives will be proven effective. As a result, there is a negative outlook for the ratings, which encompasses pressure on the company’s ERM building block assessment. If these trends continue, there could be a downward revision in the company’s ERM assessment.

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