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A.M. Best Downgrades Issuer Credit Rating of Farmers Mutual Hail Insurance Company of Iowa

June 16, 2014

ENP Newswire - 16 June 2014

Release date- 13062014 - A.M. Best has downgraded the issuer credit rating to 'a' from 'a+' and affirmed the financial strength rating of A (Excellent) of Farmers Mutual Hail Insurance Companyof Iowa (FMH) (West Des Moines, IA).

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 A.M. Best's expectations.

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.

A.M. Best's credit ratings are independent and objective opinions, not statements of fact. A.M. Best is not an Investment Advisor, does not offer investment advice of any kind, nor does the company or its Ratings Analysts offer any form of structuring or financial advice. A.M. Best's credit opinions are not recommendations to buy, sell or hold securities, or to make any other investment decisions.

A.M. Best receives compensation for its rating services from the organizations that it rates, unless such ratings are identified with a Public Data modifier ('pd'). Public Data ratings are based on information available in the public domain and indicate the more limited scope of the rating and the fact that the company did not initiate the rating. A.M. Best does not send entities assigned a 'pd' rating an invoice for its rating services and does not assign ratings to securities issued by companies assigned a Best's 'pd' rating. A.M. Best may also receive compensation from rated entities for non-rating related services or products offered by A.M. Best. A.M. Best does not offer consulting or advisory services. For more information regarding A.M. Best's rating process, including handling of confidential (non-public) information, independence, and avoidance of conflicts of interest, please read the A.M. Best Code of Conduct.

A.M. Best Company and its subsidiaries are not registered as External Credit Assessment Institutions (ECAI) in the European Union (EU). Credit ratings issued by A.M. Best Company and its subsidiaries can not be used for regulatory purposes in the EU as per Directive 2006/48/EC.

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Source: ENP Newswire

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