A.M. Best Upgrades Ratings of Farm Bureau Life Insurance Company
December 18, 2014 by Best's News Service
Oldwick – A.M. Best has upgraded the financial strength rating to A (Excellent) from A- (Excellent) and the issuer credit ratings (ICR) to “a” from “a-” of Farm Bureau Life Insurance Company (FBL). Concurrently, A.M. Best has upgraded the ICR to “bbb” from “bbb-” of FBL Financial Group, Inc. (FFG)[NYSE: FFG], the parent of FBL. The outlook for all ratings has been revised to stable from positive. Both companies are domiciled in West Des Moines, IA.
The positive rating actions reflect the company’s strong risk-adjusted capitalization, high credit quality of invested assets, trend of improving statutory net income, minimal use of reinsurance and modest financial leverage at the holding company, coupled with very strong interest coverage. The rating actions also reflect strong statutory return on equity ratios relative to peer companies and the increasing first year premium in its ordinary life lines of business, representing a more balanced mix between ordinary life and individual annuity sales. FBL also benefits from favorable persistency and above average levels of penetration of its Farm Bureau member base through its exclusive agency force.
Offsetting rating factors include ongoing spread compression, particularly within its life block, which has a high level of interest rate sensitivity. FBL also faces challenges in managing its annuity block, which has a high percentage of account values at minimum rate guarantees, as well as limited surrender charge protection, which creates the potential for disintermediation risk. However, disintermediation risk is somewhat offset by the loyal nature of FBL’s customer base. FBL’s business profile remains geographically narrow and it faces challenges in growing and retaining its agency force. FBL has limited brand name recognition outside of its rural Midwestern markets.
Following the upgrade, positive rating movement is unlikely in the near to medium term. Factors that may lead to a negative rating action include a material decline in operating results or risk-adjusted capitalization levels, or flat to declining trends in ordinary life premium growth.
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 www.ambest.com/ratings/methodology.
Key insurance criteria reports utilized:
- Equity Credit for Hybrid Securities
- Insurance Holding Company and Debt Ratings
- Risk Management and the Rating Process for Insurance Companies
- Understanding BCAR for U.S. and Canadian Life/Health Insurers
- A.M. Best’s Liquidity Model for U.S. Life Insurers
- A.M. Best’s Perspective on Operating Leverage
- Rating Members of Insurance Groups
This press release relates to rating(s) that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best’s Ratings & Criteria Center.
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