Credit rating agency AM Best has downgraded the credit ratings of Farm Bureau Mutual Insurance Company of Arkansas, Inc. (FBMICA), a regional insurer, due to severe weather-related losses.

The Financial Strength Rating dropped from B+ (Good) to B (Fair) and the Long-Term Issuer Credit Rating from “bbb-” (Good) to “bb” (Fair), with the ratings remaining under review and the outlook revised to developing.

These downgrades are driven by ongoing severe weather-related losses, which have significantly weakened FBMICA’s policyholder surplus and overall risk-adjusted capitalisation.

Notable weather events, such as hail, windstorms, and tornadoes, have led to substantial financial losses, exacerbating the company’s vulnerability due to its single-state operations in Arkansas.

A major tornado event in May 2024 further strained the company’s financial standing, leading to a downgrade of the balance sheet assessment from strong to adequate.

Despite maintaining the under review status, the revised outlook reflects AM Best’s anticipation that FBMICA’s efforts to refine its capital management strategy will eventually bolster its risk-adjusted capitalisation and balance sheet strength. The company is actively implementing rate increases and underwriting adjustments to mitigate future losses.

The ratings will remain under review until these strategies are effectively implemented and their impact on the company’s financial and operational performance can be evaluated. If FBMICA fails to execute these plans or if the strategies do not result in significant improvements, further downgrades may occur.