AM Best recently downgraded the long-term issuer credit rating (ICR) outlook of the Oklahoma Department of Agriculture Mutual Fund and its subsidiary AgSecurity Insurance Company from “stable” to “negative”. Meanwhile, it is confirmed that its financial strength Rating (FSR) is B++ (good) and its long-term ICR is “bbb+” (good). The rating agency pointed out that the strength of the group’s balance sheet is still assessed as “very strong”, thanks to its sufficient risk-adjusted capital and conservative investment strategy. However, the underwriting performance has continued to deteriorate, mainly due to adverse weather conditions, inflation and rising reinsurance costs, resulting in underperforming operations compared to peers.
Although the management has taken measures to improve performance, including raising rates and adjusting reinsurance plans, AM Best believes that the effects of these measures remain to be seen. The group dominates the agricultural insurance market in Oklahoma, but its business is highly concentrated, making it vulnerable to regional weather and regulatory risks. Furthermore, its relatively high exposure to property risks has also exacerbated the operational pressure.
AM Best emphasized that the Enterprise Risk Management (ERM) system of the Oklahoma Department of Agriculture is still appropriate, including comprehensive reinsurance arrangements to deal with tail risks. However, if underwriting losses continue in the future, it may further affect its credit rating. At present, the financial strength rating outlook of the group remains stable.
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