A.M. Best Affirms FSR for Florida Farm Bureau Group

October 18, 2004

A.M. Best Co. has affirmed the financial strength rating of A (Excellent) of the Florida Farm Bureau Group. The rating applies to Florida Farm Bureau Casualty Insurance Company and its fully reinsured subsidiary, Florida Farm Bureau General Insurance Company. All companies are located in Gainesville, Fla. The rating outlook is stable.

The rating reflects the Group’s strong capitalization, solid operating earnings, pro-active risk management philosophy and its knowledge of the Florida marketplace. These positive rating attributes are partially offset by the Group’s exposure to catastrophic loss accumulation, as well as market, legislative and regulatory concerns due to its business concentration in Florida.

The Group’s positive rating factors are derived from management’s conservative operating strategies as evidenced by its high-quality investment portfolio and its intensive catastrophe management plan that avoids concentrations of risk within any given area of Florida. The rating also recognizes the Group’s solid operating performance, derived from its disciplined underwriting and pricing approach, its controlled business growth and efficiencies realized through automation initiatives.

In addition, the Group maintains a sustainable competitive advantage due to its extensive local market knowledge and low cost structure, both of which are fostered by its exclusive agency network. Further, the Group benefits from its sponsorship by the Florida Farm Bureau Federation, which enhances customer loyalty and affinity.

Finally, the rating acknowledges the commitment and support the Group receives from its parent, Southern Farm Bureau Casualty Insurance Company (Ridgeland, Miss.), which is one of the 50 largest U.S. insurance organizations and markets a full complement of insurance products.

The Group’s negative rating factors include its geographic concentration as a Florida property writer, which exposes it to catastrophic loss accumulation from hurricanes. This was particularly evident in 2004, when Hurricanes Charley, Frances, Ivan and Jeanne resulted in significant gross incurred losses. However, the Group maintains a comprehensive reinsurance program, integrated with coverage from the Florida Hurricane Catastrophe Fund, designed to withstand a net pre-tax “250-year season” loss (considering both frequency and severity of loss) without impairment in operations.

Consequently, while gross exposure from these hurricanes was high, net incurred losses were reduced to a manageable level. Additionally, the Group’s operating performance deteriorated in prior years, driven by rising loss costs for private passenger auto liability, primarily bodily injury and personal injury protection coverages.

Furthermore, a deterioration in homeowners loss experience also adversely impacted underwriting results as emerging causes of loss (such as sinkhole activity and mold damage) drove loss costs upward. However, the Group implemented numerous strategic initiatives that resulted in a significant improvement in core underwriting results and operating earnings since the beginning of 2003.

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