AM Best: Farm Bureau Insurers Navigate Challenges, Concentration

The US property-casualty farm bureau segment has experienced a 13 percent premium increase in the past 2 years, driven by personal auto, homeowners, and farmowners business lines, as highlighted in a recent AM Best report.

The report, Best's Market Segment Report, indicates that the growth among AM Best-rated property casualty farm bureaus aligns with the overall property-casualty industry's growth, with direct premiums written for this segment growing from $12.6 billion to $17.3 billion in 2022. Most farm bureau exposures focus on short- to medium-tailed personal lines business, but the segment has encountered underwriting challenges due to adverse weather events and inflation, causing earning strains in 2022 and the first 9 months of 2023.

Despite overall premium growth, farm bureaus have experienced a trend of decreased market share in their primary lines of business. One-third of single-state farm bureaus hold double-digit market shares in their top lines of business, and only two have double-digit market shares in both primary lines, the report notes.

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

Historically, AM Best–rated property casualty farm bureaus demonstrated favorable net income, resulting in consistent policyholder surplus growth averaging 4.9 percent since 2013. Although well-capitalized, with 82 percent achieving the top two levels in AM Best's balance sheet strength assessment, these bureaus face challenges due to geographic concentration, with two-thirds deriving premiums from a single state. This concentration heightens exposure to catastrophe risk and regulatory pressures.

The report highlights a shift in single-state farm bureaus writing more business outside their states, relying on alternative distribution strategies like direct-to-consumer sales. However, compliance with marketing and licensing requirements necessitates the setup of separate subsidiaries for out-of-state business, posing additional complexities.

"Given these considerations, some farm bureaus achieve premium diversification by acquiring smaller insurers outside of their home territory," Mr. Lewis said.

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