ENP Newswire -
Release date- 13062014 -
The outlook for both ratings is stable.
The rating actions reflect FMH's unusually poor operating performance since 2012. That year saw the worst drought conditions in the last 25 years, which resulted in large losses across the multiple peril crop insurance industry (MPCI), including at FMH. In 2013, operating results were negatively impacted by a drop in commodity prices that led to a second year of operating losses. Operating results also have been negatively impacted by the company's recently introduced property/casualty book that has consistently posted operating losses. The unfavorable results have further been exasperated by FMH's declining levels of investment income.
The ratings acknowledge FMH's excellent capitalization, historically good operating performance, strong agency relationships and the benefits derived from its market presence within the MPCI sector. The ratings also recognize the added balance sheet protection provided by an aggregate stop loss reinsurance treaty, which minimizes the potential impact from severe underwriting losses as well as management's knowledge and expertise in its highly specialized lines of business. The company's MPCI program has a history of profitable operating results despite the unfavorable outcomes since 2012. Although operating losses were posted in 2013, after tax net income was positive for the year. Further surplus grew nearly 13% due (in large part) to the reversal of the prior year's reinsurance penalty.
The outlook for both ratings of FMH could be revised if its operating performance falls markedly short of
The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of
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