Best’s Market Segment Report: Farm Bureau Insurers Navigate Underwriting Challenges, Geographic and Business Concentration Issues

The personal auto, homeowners and farmowners’ business lines have helped fuel a 13% increase in premiums over the past two years within the U.S. property/casualty (P/C) farm bureau segment, according to a new AM Best report.

This Best’s Market Segment Report notes that the growth among a group of P/C farm bureaus rated by AM Best has been generally consistent with the P/C industry’s growth as a whole. Over the past decade, direct premiums written (DPW) among this P/C segment has grown from $12.6 billion to $17.3 billion in 2022. Most farm bureau exposures are centered on short- to medium-tailed personal lines business. This segment has also faced underwriting challenges in recent years due largely to adverse weather events and inflation, which have created earning strains for these organizations in 2022, as well as the first nine months of 2023.

The report notes that despite overall premium growth, farm bureaus have displayed a trend of decreased market share in their primary lines of business. One-third of the single-state farm bureaus have double-digit market shares in their top lines of business; just two have double-digit market shares in both of their two primary lines of business.

“Geographic and business lines remain concentrated, although the companies benefit from a policy retention rate typically above 90%, better than the industry as a whole,” said Christopher Lewis, senior financial analyst, AM Best.

Prior to 2022, AM Best-rated P/C farm bureaus’ historically favorable net income has led to consistent policyholder surplus growth, which has increased an average 4.9% since 2013. In general, most of this segment remains well-capitalized, with 82% having achieved the two highest levels under AM Best’s balance sheet strength assessment.

However, these P/C farm bureaus are geographically concentrated, with two-thirds of the rated companies deriving their premium from one state. Having this kind of material premium concentration in a single state can heighten exposure to not just catastrophe risk, but also regulatory pressures.

The report notes that single-state farm bureaus are starting to write more business outside their own states. Although this can be beneficial over the longer term, premium growth is often slow and immaterial, relying on alternative distribution strategies such as direct-to-consumer sales. To complicate matters further, farm bureaus are required to set up separate subsidiaries to distribute out-of-state business, to comply with marketing and licensing requirements. “Given these considerations, some farm bureaus achieve premium diversification by acquiring smaller insurers outside of their home territory,” Lewis said.

For those farm bureaus with a dual focus, the challenged profitability experienced in some P/C lines has been partially mitigated by underwriting life/annuity lines of business. “This can provide additional advantages with regard to distribution, pricing, and areas of management expertise, as well as capital support,” Lewis said. “Such relationships can boost farm bureaus over many personal lines and life carriers that write such business exclusively.”

Aggregate direct premium among the organizations that comprise the AM Best-rated life/annuity farm bureau population has fluctuated on an annual basis within the range of $2.7 billion to $3.2 billion over the past decade. The overall split among ordinary life, annuity, investment, and accident & health products has been relatively consistent over the last decade. Ordinary life products historically make up roughly 70% of the business and individual annuities, 20%. “In recent years, there has been a slight shift away from annuities and a greater emphasis on protection products,” Lewis said.

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=339662.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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