A recent report from AM Best reveals that the U.S. property/casualty (P/C) farm bureau segment has witnessed a 13% increase in premiums over the past two years, largely fueled by personal auto, homeowners, and farmowners’ business lines.
The report notes that this growth aligns with the overall expansion of the P/C industry, with direct premiums written (DPW) in this segment growing from $12.6 billion to $17.3 billion in 2022.
However, the report also highlights underwriting challenges faced by farm bureaus, primarily attributed to adverse weather events and inflation.
Despite the overall premium growth, farm bureaus have experienced a trend of decreasing market share in their primary lines of business.
Geographic and business concentration issues persist, with two-thirds of the rated companies deriving a substantial portion of their premium from a single state.
Christopher Lewis, senior financial analyst at AM Best, emphasises the concentration risk, stating that it exposes these companies not only to catastrophe risks but also to regulatory pressures.
Although farm bureaus traditionally boast a policy retention rate above 90%, better than the industry average, the report suggests that market share concentration remains a concern.
The report acknowledges that single-state farm bureaus are diversifying by writing business outside their home states.
While this strategy has long-term benefits, it poses challenges, including slow and immaterial premium growth. Some farm bureaus are navigating this by acquiring smaller insurers outside their home territories, thereby achieving premium diversification.
Furthermore, the report notes that farm bureaus with a dual focus on P/C and life/annuity lines have mitigated profitability challenges in some P/C lines. Underwriting life/annuity lines of business provides additional advantages in terms of distribution, pricing, management expertise, and capital support.
The AM Best-rated life/annuity farm bureau population has seen fluctuating aggregate direct premiums, with a recent shift toward protection products over annuities.
