best’s rating report - floridafarmbureau.com · underwriting results, ... 3.5 2016 by-line...

Printed September 7, 2017 www.ambest.com of 9

Best’s Rating Report

FLORIDA FARM BUREAU GROUPFlorida Farm Bureau Casualty A

Florida Farm Bureau General A

Associated With: Southern Casualty Holding Company

FLORIDA FARM BUREAU GROUP5700 Southwest 34th Street, Gainesville, FL 32608-5330

Mailing Address: P.O. Box 147030, Gainesville, FL 32614-7030Web: www.floridafarmbureau.com

Tel: 352-378-8100 Fax: 352-374-1514AMB#: 003946Associated Ultimate Parent#: 046019

RATING RATIONALE

Rating Rationale: The ratings and outlooks reflect Florida Farm BureauGroup’s strong risk-adjusted capitalization, favorable operating earnings andextensive knowledge of the Florida marketplace. The ratings alsoacknowledge the commitment and support received from its parent, SouthernFarm Bureau Casualty Insurance Company, which is a leading personal linesinsurance organization and markets a full complement of insurance products.These positive rating attributes are offset by the group’s exposure tocatastrophic loss accumulation, continued pressure in the auto line ofbusiness, and market, legislative and regulatory concerns due to its businessconcentration in Florida.

The group’s positive rating factors are derived from management’sconservative operating strategies that involve considerable risk managementinitiatives and maintaining a high-quality investment portfolio, which havebeen the main drivers of surplus appreciation during the latest five-yearperiod. Since 2012, Florida Farm Bureau has produced pre-tax operating gainsand positive net income in four of the last five years, along with improvedrisk-adjusted capitalization. The group’s five-year average pre-tax returns onrevenue and equity compare favorably to the private passenger standard autoand homeowners composite. Underwriting results, though generally negativeprior to 2012, have been positive in four of the last five years. Combined withsolid, though suppressed net investment income (due to a historically lowinterest rate environment), the group has produced generally positive pre-taxoperating earnings over the past five years. The ratings also recognize thegroup’s disciplined business growth and efficiencies realized throughautomation initiatives. In addition, the group maintains a sustainablecompetitive advantage due to its extensive local market knowledge andlow-cost structure, both of which are fostered by its exclusive agency network.Further, the group benefits from its sponsorship by the Florida Farm BureauFederation, which enhances customer loyalty and affinity.

Partially offsetting these positive factors is the group’s geographicconcentration as a Florida property writer, which exposes it to potentialcatastrophic loss accumulation from hurricanes, and product concentration inthe auto book of business, which has historically produced volatile results. Inrecent years, no major hurricane has made landfall but underwriting resultshave been impacted by assignment of benefits. Management has implementedseveral corrective initiatives to mitigate such losses, which include improvingnegotiation and claim practices. The group maintains a comprehensive

reinsurance program, integrated with coverage from the Florida HurricaneCatastrophe Fund, designed to minimize surplus loss from both frequent andsevere hurricanes. While the gross probable maximum loss (PML) from a100-year hurricane event remains high relative to surplus, the net impact tosurplus from such an event has been reduced to a manageable level. Theratings are based on the consolidation of Florida Farm Bureau CasualtyInsurance Company and its fully reinsured subsidiary.

Negative rating pressure could occur with a material decline in overallrisk-adjusted capitalization, with a negative trend in operating results, as aresult of regulatory or legislative decisions, or in the event of parentalwithdrawal of support.

RATING UNIT MEMBERSFlorida Farm Bureau Group (AMB# 003946):

AMB# COMPANYBEST’SFSR

003590 Florida Farm Bureau Casualty A011337 Florida Farm Bureau General A

KEY FINANCIAL INDICATORS ($000)————————————Statutory Data————————————

PeriodEnding

DirectPremiumsWritten

NetPremiumsWritten

Pre-taxOperating

IncomeNet

Income

TotalAdmitted

Assets

Policy-holders’Surplus

2012 296,781 226,332 19,803 14,943 474,063 227,5452013 308,592 235,518 23,184 20,117 502,836 246,2702014 307,019 237,255 31,099 24,845 532,233 268,9792015 302,323 238,577 27,633 21,610 554,446 292,3262016 304,786 250,834 -10,125 -7,884 557,405 285,761

——Profitability—— ———Leverage——— ——Liquidity——

PeriodEnding

Comb.Ratio

Inv.Yield(%)

Pre-taxROR(%)

NAInvLev

NPWto

PHSNetLev.

OverallLiq.(%)

Oper.Cash

flow (%)2012 97.4 3.1 8.9 2.9 1.0 2.1 192.3 111.82013 95.8 2.8 10.0 2.6 1.0 2.0 196.0 114.52014 93.3 2.8 13.0 2.5 0.9 1.9 202.2 113.62015 94.7 2.7 11.5 2.3 0.8 1.7 211.5 111.72016 110.3 2.7 -4.1 2.5 0.9 1.8 205.2 99.4

5-Yr 98.4 2.8 7.8 … … … … …

(*) Within several financial tables of this report, this company is compared against the PrivatePassenger Standard Auto & Homeowners Composite.

(*) Data reflected within all tables of this report has been compiled through the A.M. BestConsolidation of statutory filings.

BUSINESS PROFILE

The Florida Farm Bureau Group consists of two domestic property andcasualty insurance companies, Florida Farm Bureau Casualty InsuranceCompany (FFB Casualty) and its wholly owned subsidiary, Florida Farm



Bureau General Insurance Company (FFB General). The group specializes inwriting private passenger automobile, homeowners, dwelling fire, farm andbusiness owners lines of insurance for members of the Florida Farm BureauFederation. The group’s target market remains “preferred” personal lines, withsome associated commercial exposures. The group ranks as one of the marketleaders for private passenger automobile and homeowners insurance businessin Florida.

The group offers three major package policies in addition to homeowners:1) a country squire policy (fire and inland marine coverage on farm personalproperty, farm comprehensive personal liability, and an endorsement to ahomeowners and dwelling package policy); 2) a dwelling package policy; and3) a commercial lines package policy. Business is marketed and serviced by anetwork of over 190 exclusive agents located in each county of Florida. Onlymembers of the federation are eligible for insurance coverages. The group alsoparticipates in several reinsurance pools with various farm bureau companiesas well as the Automobile Joint Underwriting Association.

All farm bureau property and casualty business written in Florida isultimately reflected in the financial statements of FFB Casualty. Since 1993,FFB Casualty reinsures all of the business, except for that portion that is cededdirectly to the Florida Hurricane Catastrophe Fund, written by FFB General,which was the successor to the Florida Farm Bureau Mutual InsuranceCompany (FFB Mutual).

TOTAL PREMIUM COMPOSITION & GROWTH ANALYSIS

PeriodEnding

———DPW———Reinsurance

—Prem Assumed—Reinsurance

—Prem Ceded—($000) (% Chg) ($000) (% Chg) ($000) (% Chg)

2012 296,781 4.5 863 -6.1 71,312 5.02013 308,592 4.0 522 -39.4 73,597 3.22014 307,019 -0.5 455 -12.9 70,218 -4.62015 302,323 -1.5 407 -10.5 64,153 -8.62016 304,786 0.8 376 -7.6 54,328 -15.3

5-Yr CAGR … 1.4 … -16.4 … -4.4

PeriodEnding

————NPW———— ————NPE————($000) (% Chg) ($000) (% Chg)

2012 226,332 4.3 221,786 6.52013 235,518 4.1 232,721 4.92014 237,255 0.7 238,905 2.72015 238,577 0.6 240,933 0.82016 250,834 5.1 247,178 2.6

5-Yr CAGR … 2.9 … 3.5

2016 BY-LINE BUSINESS ($000)Reinsurance Reinsurance

———DPW——— —Prem Assumed— —Prem Ceded—Product Line ($000) (%) ($000) (%) ($000) (%)Priv Pass Auto Liab 107,355 35.2 … … 670 1.2Homeowners 115,089 37.8 … … 41,715 76.8Auto Physical 45,309 14.9 … … 1,175 2.2Com’l MultiPeril 11,790 3.9 … … 1,125 2.1Comm’l Auto Liab 8,510 2.8 … … 84 0.2Allied Lines 9,390 3.1 … … 7,826 14.4All Other 7,342 2.4 376 100.0 1,733 3.2

Total 304,786 100.0 376 100.0 54,328 100.0

Business———NPW——— Retention

Product Line ($000) (%) (%)Priv Pass Auto Liab 106,685 42.5 99.4Homeowners 73,375 29.3 63.8Auto Physical 44,134 17.6 97.4Com’l MultiPeril 10,665 4.3 90.5Comm’l Auto Liab 8,426 3.4 99.0Allied Lines 1,564 0.6 16.7All Other 5,985 2.4 77.5

Total 250,834 100.0 82.2

BY-LINE RESERVES ($000)Product Line 2016 2015 2014 2013 2012Priv Pass Auto Liab 83,408 72,559 68,688 67,730 59,851Homeowners 14,840 16,028 16,876 17,364 18,164Auto Physical 3,762 3,149 2,815 2,316 2,338Com’l MultiPeril 4,959 5,261 6,336 6,804 6,493Comm’l Auto Liab 7,656 5,484 5,233 4,121 3,868Allied Lines 108 116 59 318 390All Other 5,668 5,069 5,054 5,828 4,920

Total 120,401 107,664 105,062 104,481 96,024

GEOGRAPHIC BREAKDOWN BYDIRECT PREMIUM WRITINGS ($000)

2016 2015 2014 2013 2012Florida 304,786 302,323 307,019 308,592 296,781

Total 304,786 302,323 307,019 308,592 296,781

RISK MANAGEMENT

Florida Farm Bureau (FFB) is working on a formal written company-wideERM framework compiling current and future efforts in risk areas. Currently,the group has an ERM program that has been in place for several years withimplemented risk controls and monitoring where applicable. The main focusof ERM is on the insurance and underwriting risk as the group’s conservative



approach regarding other decisions and risks minimizes their non-insuranceexposure. The company addresses pricing risk with annual rate reviews andfilings when necessary. Reserves are monitored quarterly and set consistentlyand slightly redundant to minimize risk from claims emergence or growth.Pricing and loss trends are monitored and projected for planning anddecision-making purposes. The Claims Department has a planned anddeliberate approach to managing catastrophe situations and their ProductsDepartment stays on top of the industry standards for forms and coverages.The Compliance and Government Relations Department is committed tokeeping FFB involved, and proactive, in all regulatory and legislative activitiesin the Florida state capital, Tallahassee. Several department heads and stafferssit on boards and advisory councils to stay involved in industry discussions onemerging topics, such as auto liability fraud and trends, trade group initiatives,and guaranty and residual market condition (and assessments).

Exposure Management applies company-directed thresholds (based on TIVand TVAR) to spread exposures and minimize concentrations forhurricane/tropical storm and also perils such as tornado, hail, and sinkhole.Wind/water litigation is explicitly mitigated by restricting coastal exposure.Daily, monthly, and quarterly reports track policy growth, TIV growth, losses,retention, close rates, and expenses by LOB, county, or agent, and exposuregrowth is targeted by county and spread within county for any location orsurrounding square mile. All property policies include an inflation adjustmentor re-evaluation on each renewal to ensure adequate Insurance to Value, andany excluded policy is monitored by UW on each renewal since managementconsiders good data quality essential to insurance operations, rating accuracy,minimize premium leakage, and to direct future product innovation.

Reinsurance plays an important role in FFB’s capital strategy and ismanaged closely. The stated goal is to survive a storm equivalent to a 250-yearProbable Maximum Loss (PML) in a single season with a loss to surpluswithin reasonable limits. FFB has implemented minimum rating thresholdsfor all reinsurers, and FFB approves the list of all reinsurers receiving theirsubmissions at each renewal. These thresholds were put in place to safeguardfast collections at the expected recovery level. The reinsurance program isrounded out beyond catastrophic risk using Property Per Risk and CodedExcess, Excess Casualty, Excess Umbrella, Terrorism, and Aggregatecoverages.

In recent years, Assignment of Benefits (AOB) has impacted Florida FarmBureau Group. To mitigate this matter, the company contacts the insuredwithin 24 hours to determine if an AOB exists; in addition, they address AOBsthrough negotiation, mediation and appraisal rather than litigation, and theywork with the insured to ensure any additional/future repairs are completed inline with the company’s scope of work. The company has plans on adjustingand making future form changes.

OPERATING PERFORMANCE

Operating Results: Florida Farm Bureau Group has historically generatedfavorable operating earnings particularly during years of low and moderatecatastrophe activity. The group’s generally positive pre-tax operating incomehas been driven by net investment income, improved underwriting results and

fee income. Although weather activity has been mild in recent years, resultshave been moderately dampened by assignment of benefits occurring acrossthe state. However, both milder weather patterns and a mitigation of thesinkhole claims in 2012, and more significantly in 2013 and 2014, have helpedFlorida Farm Bureau achieve generally positive underwriting results over thepast five years. As a result, the group’s five year average pre-tax operatingreturns on revenue and equity compare favorably to the private passengerstandard auto and homeowners composite. Net investment income has seenminimal fluctuation, though suppressed, over the past five years, and whencombined with underwriting profitability and fee income, has resulted infavorable pre-tax operating earnings and net income. Additions to surplushave also been reported in four of the last five years.

PROFITABILITY ANALYSIS ($000)———————————Company———————————

Pre-tax After-taxPeriod Operating Operating Net TotalEnding Income Income Income Return2012 19,803 14,935 14,943 15,1222013 23,184 19,627 20,117 19,4022014 31,099 25,048 24,845 26,2932015 27,633 21,694 21,610 21,9632016 -10,125 -7,946 -7,884 -7,655

5-Yr Total 91,595 73,357 73,632 75,125

————Company———— ——Industry Composite——Period Pre-tax Return Operating Pre-tax Return OperatingEnding ROR (%) on PHS (%) Ratio (%) ROR (%) on PHS (%) Ratio (%)2012 8.9 6.9 91.8 3.0 6.1 97.02013 10.0 8.2 90.7 6.8 9.8 92.72014 13.0 10.2 88.0 6.2 8.2 93.52015 11.5 7.8 89.3 5.4 3.9 94.42016 -4.1 -2.6 104.8 3.1 5.4 97.0

5-Yr Avg 7.8 5.9 93.0 4.9 6.6 94.9

Underwriting Results: The group’s underwriting results have performedfavorably for four out of five years and has generally produced a lowercombined ratio. As a single state writer in Florida, the group’s underwritingresults are exposed to frequent and severe weather related events. Thehomeowner’s segment is the group’s largest line of business, based on directpremium written with potential for significant volatility. The group maintainsa comprehensive reinsurance program, integrated with coverage from theFlorida Hurricane Catastrophe Fund, designed to consider both frequency andseverity of loss which limits its net losses from these events. Although therehas been no landfall of a major hurricane in several years, the group’sunderwriting results have been somewhat dampened due to mandatory raterollbacks, increased sinkhole losses, assignment of benefits and reinsurancecosts. Management has implemented several corrective initiatives to improveunderwriting results, which include significant rate increases, reduction ofsinkhole risks in counties where a majority of sinkhole claims originate, and



tighter underwriting guidelines. These efforts have borne fruit since as theFlorida Farm Bureau Group posted four consecutive years of underwritingprofit between 2012 and 2015.

The group does maintain a somewhat elevated loss and LAE ratio partiallyoffset by the group’s relatively lower underwriting expense ratio, which hasbeen driven by its cost-efficient exclusive agency network and operatingefficiencies achieved through increased automation of business processes.

UNDERWRITING EXPERIENCE

PeriodEnding

Net UndrwIncome($000)

—Loss Ratios— —Expense Ratios— IndPureLoss LAE

Loss &LAE

NetComm.

OtherExp.

TotalExp.

Div.Pol.

Comb.Ratio

Comb.Ratio

2012 4,748 63.7 10.9 74.6 9.6 13.2 22.8 … 97.4 103.72013 9,231 61.9 11.5 73.3 8.7 13.7 22.4 … 95.8 98.82014 16,251 60.7 10.6 71.3 8.6 13.5 22.0 … 93.3 99.42015 13,235 63.1 10.3 73.4 7.7 13.6 21.3 … 94.7 99.72016 -26,272 77.2 11.5 88.6 9.4 12.3 21.7 … 110.3 101.7

5-Yr Total/Avg 17,194 65.4 10.9 76.4 8.8 13.2 22.0 … 98.4 100.6

BY-LINE LOSS RATIOProduct Line 2016 2015 2014 2013 2012 5-Yr AvgPriv Pass Auto Liab 87.5 78.9 79.6 82.2 78.0 81.4Homeowners 59.3 39.4 36.8 39.8 44.5 43.8Auto Physical 83.0 78.3 71.6 66.3 67.3 73.5Com’l MultiPeril 96.5 55.2 36.3 41.3 68.1 61.2Comm’l Auto Liab 70.3 54.5 60.5 45.6 49.8 56.5Allied Lines 90.9 32.7 25.0 80.7 140.0 65.4All Other 53.6 39.9 49.8 46.5 65.5 51.5

Total 77.2 63.1 60.7 61.9 63.7 65.4

DIRECT LOSS RATIO BY STATE2016 2015 2014 2013 2012 5-Yr Avg

Florida 62.7 51.7 49.4 49.8 50.3 52.8

Total 62.7 51.7 49.4 49.8 50.3 52.8

Investment Results: The group’s investment portfolio has generated solid,albeit fluctuating, net investment income over the previous five-year period,with a five-year pre-tax investment yield that is slightly below the privatepassenger auto and homeowners industry composite. Although net investmentincome and yields have been tempered by lower market interest rates, investedassets have trended higher over the past five years. Due to the group’s modestequity portfolio relative to surplus (5%), the group’s five-year total return oninvested assets has been in-line with its five-year pre-tax investment yield withminimal overall effect from relatively modest realized and unrealized capitalgains over the past five year period.

INVESTMENT GAINS ($000)——————————Company——————————

Net Realized UnrealizedInv Capital Capital

Year Income Gains Gains2012 12,406 8 1782013 11,803 490 -7152014 12,819 -203 1,4482015 13,068 -83 3532016 13,522 62 229

5-Yr Total 63,617 274 1,494

———————Company——————— Industry CompositePre-taxInvest

Inv Inc Inv Return on Total Inv Inc InvGrowth Yield Inv Assets Return Growth Yield

Year (%) (%) (%) (%) (%) (%)2012 -8.7 3.1 3.1 3.1 13.7 3.62013 -4.9 2.8 2.9 2.8 -0.5 3.42014 8.6 2.8 2.8 3.1 -1.0 3.22015 1.9 2.7 2.7 2.8 -3.8 3.02016 3.5 2.7 2.8 2.8 -7.7 2.7

5-Yr Avg -0.1 2.8 2.8 2.9 -0.1 3.1

BALANCE SHEET STRENGTH

Capitalization: Florida Farm Bureau Group maintains strong overallcapitalization, as indicated by Best’s Capital Adequacy Ratio (BCAR), whichcomfortably supports its rating. The group’s capital position is reflective of itsmoderate underwriting leverage, favorable loss reserve development andconservative investment risk profile. Further, the group’s solid capitalizationis derived from its historical ability to generate organic capital throughsustained operating earnings particularly in non-catastrophe years. Finally, thegroup’s capitalization reflects the operating support of its parent, SouthernFarm Bureau Casualty Insurance Company. As a property writer in Florida,the group’s overall capitalization is susceptible to aggregate losses resultingfrom hurricanes. Despite the high level of potentially gross catastropheexposure arising from the group’s geographic concentration, as evidenced bythe relatively high risk to surplus from a 1/100 year hurricane event, the riskfrom such an event has been reduced to a manageable level on a net retainedbasis through an extensive reinsurance program. Adjusted for hurricaneexposure, overall capitalization remains supportive of the group’s rating. Thegroup has demonstrated favorable internal surplus generation during years oflow and moderate catastrophe losses, with surplus growth attributable togenerally consistent positive operating earnings.

Current BCAR: 379.5



CAPITAL GENERATION ANALYSIS ($000)————————Source of Surplus Growth————————

Pre-tax Realized UnrealizedOperating Capital Income Capital

Year Income Gains Taxes Gains2012 19,803 8 4,868 1782013 23,184 490 3,557 -7152014 31,099 -203 6,051 1,4482015 27,633 -83 5,939 3532016 -10,125 62 -2,178 229

5-Yr Total 91,595 274 18,237 1,494—————Source of Surplus Growth—————

Net Change % ChgContrib. Other in in

Year Capital Changes PHS PHS2012 … 81 15,203 7.22013 … -678 18,724 8.22014 … -3,584 22,709 9.22015 … 1,384 23,347 8.72016 … 1,090 -6,565 -2.2

5-Yr Total … -1,707 73,418 6.1

QUALITY OF SURPLUS ($000)Surplus Other Contributed Unassigned

Year Notes Debt Capital Surplus2012 … … 79,941 147,6052013 … … 79,816 166,4532014 … … 79,702 189,2772015 … … 79,147 213,1792016 … … 79,092 206,669

Year-End Conditional AdjustedYear PHS Reserves PHS2012 227,545 … 227,5452013 246,270 … 246,2702014 268,979 … 268,9792015 292,326 … 292,3262016 285,761 … 285,761

LEVERAGE ANALYSIS

PeriodEnding

—————Company———— ————Industry Composite————

NPW toPHS

Res.to

PHSNetLev.

GrossLev.

NPW toPHS

Res.to

PHSNetLev.

GrossLev.

2012 1.0 0.4 2.1 2.4 1.1 0.8 2.6 3.02013 1.0 0.4 2.0 2.4 1.1 0.8 2.6 3.02014 0.9 0.4 1.9 2.2 1.1 0.8 2.6 2.92015 0.8 0.4 1.7 2.0 1.1 0.8 2.6 3.02016 0.9 0.4 1.8 2.0 1.1 0.8 2.7 3.0

CEDED REINSURANCE ANALYSIS ($000)

PeriodEnding

——————Company—————— ——Industry Composite——

CededReins. Total

Bus.Ret.(%)

Reins.Recov. toPHS (%)

CededReins. toPHS (%)

Bus.Ret.(%)

Reins.Recov. toPHS (%)

CededReins. toPHS (%)

2012 83,659 76.0 8.3 36.8 91.4 22.1 35.82013 90,898 76.2 9.7 36.9 92.1 21.2 34.02014 83,868 77.2 7.4 31.2 92.6 20.8 32.52015 79,109 78.8 7.0 27.1 92.7 21.1 32.62016 58,584 82.2 3.4 20.5 92.2 20.9 32.7

2016 REINSURANCE RECOVERABLES ($000)Paid &UnpaidLosses IBNR

UnearnedPremiums

OtherRecov*

TotalReinsRecov

US Insurers ..................... 2,664 6,162 732 … 9,558Pools/Associations........... 142 … … … 142

Total (ex US Affils) ...... 2,806 6,162 732 … 9,700

* Includes Commissions less Funds Withheld

Loss Reserves: Florida Farm Bureau Group maintains a conservative lossreserve position, as evidenced by consistently favorable reserve developmenton both an accident and calendar year basis. Approximately two-thirds of totalnet loss reserves were allocated to the private passenger automobile liabilityline of business. Reserves are generally short tailed with most claims paidwithin 12-36 months.

LOSS & ALAE RESERVE DEVELOP.: CALENDAR YEAR ($000)

CalendarYear

Orig.Loss

Reserves

DevelopedReserves

Thru LatestYear End

Develop.to

Orig. (%)

Develop.to

PHS (%)

Develop.to

NPE (%)

UnpaidReserves@LatestYear End

UnpaidRes. to

Develop. (%)2011 88,746 85,891 -3.2 -1.3 41.2 3,819 4.42012 90,669 85,114 -6.1 -2.4 38.4 6,641 7.82013 98,134 90,612 -7.7 -3.1 38.9 10,543 11.62014 98,932 87,821 -11.2 -4.1 36.8 19,715 22.42015 101,505 94,223 -7.2 -2.5 39.1 38,718 41.12016 113,330 113,330 … … 45.8 113,330 100.0

LOSS & ALAE RESERVE DEVELOP.: ACCIDENT YEAR ($000)

AccidentYear

Orig.Loss

Reserves

DevelopedReserves

Thru LatestYear End

Develop.to

Orig. (%)

UnpaidReserves@LatestYear End

Acc. YrLoss

Ratio

Acc. YrComb.Ratio

2011 54,833 50,127 -8.6 1,219 80.0 103.12012 55,665 49,209 -11.6 2,822 73.5 96.32013 56,124 52,195 -7.0 3,902 72.2 94.62014 59,858 50,034 -16.4 9,172 70.0 92.02015 63,488 56,971 -10.3 19,003 75.2 96.52016 74,612 74,612 … 74,612 91.9 113.6



Liquidity: Florida Farm Bureau Group maintains strong balance sheetliquidity, as non-affiliated invested assets significantly exceed overallliabilities. The group’s current, quick, and overall liquidity ratios exceed theprivate passenger standard auto and homeowners composite. The group’sinvestment philosophy continues to stress liquidity, with maturities structuredso that it can fulfill short-term obligations without having to prematurelyliquidate its invested assets. The group’s liquidity position is enhanced bystrong operating cash flow during the latest five year period, driven mainly byinvestment income and, to a lesser extent, by improving underwritingprofitability (with the exception of 2016).

LIQUIDITY ANALYSIS

PeriodEnding

—————Company————— ————Industry Composite————

QuickLiq. (%)

CurrentLiq. (%)

OverallLiq. (%)

GrossAgents Bal.to PHS (%)

QuickLiq. (%)

CurrentLiq. (%)

OverallLiq. (%)

GrossAgents Bal.to PHS (%)

2012 58.9 164.8 192.3 3.6 25.6 100.7 164.5 7.62013 39.2 169.9 196.0 3.4 25.5 102.9 164.3 7.32014 30.8 177.1 202.2 2.7 27.9 104.4 167.0 7.22015 31.8 187.3 211.5 2.3 27.2 102.9 165.4 7.42016 32.2 178.9 205.2 2.6 26.8 102.6 164.8 7.6

CASH FLOW ANALYSIS ($000)—————————Company————————— Industry CompositeUnderw Oper Net Underw Oper Underw Oper

Cash Cash Cash Cash Cash Cash CashYear Flow Flow Flow Flow (%) Flow (%) Flow (%) Flow (%)2012 9,750 25,484 45,062 104.5 111.8 97.8 105.32013 19,177 31,791 -20,862 108.9 114.5 107.6 113.12014 16,992 30,868 -19,077 107.7 113.6 102.3 107.52015 14,262 27,038 -3,229 106.3 111.7 103.7 108.82016 -16,476 -1,670 -3,048 93.7 99.4 101.7 107.3

5-Yr Total 43,704 113,510 -1,155 … … … …

Investments: Total non-affiliated invested assets at year-end 2015 totaledapproximately $490 million. Invested assets are mainly comprised ofunaffiliated long-term bonds which represent approximately 84% of totalinvested assets. The group maintains a high quality conservative investmentportfolio consisting predominantly of long-term bonds, with the remainder ofinvested assets held primarily in cash and short term investments. Long-termbonds are predominantly comprised of tax-exempt municipal, taxablemunicipals and investment grade public corporate bonds. Affiliatedinvestments and preferred and common stocks comprise only a modest shareof the invested assets portfolio (%). The average stated maturity of the bondportfolio is seven years which is considered moderately longer for the shorttailed lines of business the group writes.

INVESTMENT LEVERAGE ANALYSIS (% OF PHS)

PeriodEnding

—————————Company—————————Industry

—Composite—Class3-6

Bonds

RealEstate/Mtg.

OtherInvestedAssets

CommonStocks

Non-Affil.Inv.Lev.

Affil.Inv.

Class3-6

BondsCommon

Stocks2012 0.3 0.3 … 2.3 2.9 4.2 7.1 17.52013 0.1 0.3 … 2.2 2.6 4.8 7.7 20.32014 0.2 … … 2.3 2.5 4.5 8.2 20.42015 … … … 2.3 2.3 4.1 9.9 19.92016 … … … 2.5 2.5 4.2 10.5 19.9

INVESTMENTS - SECURITIESCurrent Year Distribution of Bonds By Maturity

————————Years———————— Yrs-Avg0-1 1-5 5-10 10-20 20+ Maturity

Government 5.0 … … … … 1Gov’t Agencies & Muni 8.9 34.4 37.4 12.2 … 6Industrial & Misc 0.6 0.4 1.1 … … 5

Total 14.5 34.9 38.5 12.2 … 62016 2015 2014 2013 2012

Bonds (000) 420,333 422,531 395,301 347,128 296,924Foreign - All Other … 0.2 0.3 0.3 0.3State/Special Revenue - US 97.7 97.7 97.9 98.2 98.2Industrial & Misc - US 2.3 2.1 1.8 1.5 1.4

Private Issues 0.3 0.6 0.7 0.5 0.4Public Issues 99.7 99.4 99.3 99.5 99.6

Bond Quality (%) 2016 2015 2014 2013 2012Class 1 99.9 99.8 99.2 99.0 98.3Class 2 0.1 0.2 0.7 1.0 1.5Class 3 … … … … 0.1Class 6 … … 0.1 0.1 0.1

INVESTMENTS - EQUITIES2016 2015 2014 2013 2012

Stocks (000) 10,511 10,193 9,630 7,899 5,291Unaffiliated Common 67.7 67.3 65.0 69.1 100.0Affiliated Common 32.3 32.7 35.0 30.9 …



INVESTMENTS - MORTGAGE LOANS & REAL ESTATE2016 2015 2014 2013 2012

Mortgage Loans &Real Estate (000) 8,635 8,618 8,834 9,919 10,290Property Occupied by Co 100.0 100.0 100.0 93.7 93.8Property Held for Inc … … … 6.3 6.2

INVESTMENTS - OTHER INVESTED ASSETS2016 2015 2014 2013 2012

Other Inv Assets (000) 53,686 56,649 59,918 78,981 100,023Cash 56.9 5.2 19.9 6.8 7.1Short-Term 42.7 94.7 79.8 93.1 92.6All Other 0.3 0.2 0.2 0.2 0.3

HISTORY

The Florida Farm Bureau Casualty Insurance Company was incorporated inApril 1974 under the laws of Florida. All of the outstanding stock of thecompany was purchased by the Southern Farm Bureau Casualty InsuranceCompany of Jackson, Mississippi in December 1983. The Florida FarmBureau General Insurance Company was incorporated in January 1993 underthe laws of Florida. It was formed as a successor to Florida Farm BureauMutual Insurance Company, which was dissolved pursuant to a corporatereorganization necessitated by Hurricane Andrew.

MANAGEMENT

The Florida Farm Bureau Group is sponsored by the Florida Farm BureauFederation, a non-profit organization committed to advancing the interest ofthe Farm Bureau members and associates by providing educational,economics, public affairs, marketing and various other services.

Administration of the group’s affairs is under the direction of Steven C.Murray, president and chief executive officer. He has been affiliated with theSouthern Farm Bureau Casualty Insurance Company since 1981 and was stateclaims manager for the Farm Bureau Mutual Insurance Company ofArkansas, Inc. prior to assuming his present position on September 1, 2013.The majority of the insurance executives operate in similar capacities in theFlorida Farm Bureau Casualty Insurance Company and its wholly-ownedsubsidiary, Florida Farm Bureau General Insurance Company. The twocompanies maintain joint administrative offices located in Gainesville,Florida.

REINSURANCE

Joint reinsurance arrangements afford protection for members of theFlorida Farm Bureau Group.

A property per risk and coded excess contract provides coverage up to $20million in excess of $.3 million with an occurrence cap of approximately $5

million and excludes hurricanes. Excess of loss reinsurance provides coverageup to $29 million in excess of $1 million on casualty risks and coverage up to$10 million in excess of $.75 million on umbrella business.

Property catastrophe reinsurance coverage is provided through acombination of the Florida Hurricane Catastrophe Fund (FHCF) and privateplacements in excess of a retention of $12 million and an annual aggregatedeductible of $10 million. Co-participation for the FHCF is 10%, while allprivate layers are covered for 100% of losses up to a gross loss ofapproximately $795.6 million. In addition, an aggregate catastrophe contractcovers $30 million excess of $30 million of net losses in any season, whetherfrom one or multiple events. The program is structured such that privatecoverage “fills in” gaps in the FHCF cover. The program is designed to handletwo large events or several smaller ones during a season even if the FHCF’sseason aggregate limit is exhausted. The group’s FHCF capacity isapproximately $143.6 million (90% of $159.6 million) in excess of a retentionof approximately $49.4 million. The private layers include coverage forcatastrophe claims on auto comprehensive coverage.

CONSOLIDATED BALANCE SHEET(at December 31, 2016)

ADMITTED ASSETS ($000)YE 2016 YE 2015 ’16% ’15%

Bonds .............................................. 420,333 422,531 75.4 76.2Common stock.................................. 7,116 6,862 1.3 1.2Cash and short-term invest ................. 53,501 56,549 9.6 10.2Other non-affil inv asset ..................... 185 100 0.0 0.0Investments in affiliates ...................... 3,394 3,331 0.6 0.6Real estate, offices ............................. 8,635 8,618 1.5 1.6

Total invested assets....................... 493,165 497,990 88.5 89.8Premium balances ............................. 39,190 36,407 7.0 6.6Accrued interest ................................ 4,869 4,930 0.9 0.9All other assets.................................. 20,181 15,119 3.6 2.7

Total assets................................... 557,405 554,446 100.0 100.0

LIABILITIES & SURPLUS ($000)YE 2016 YE 2015 ’16% ’15%

Loss & LAE reserves .......................... 120,401 107,664 21.6 19.4Unearned premiums........................... 110,700 107,044 19.9 19.3All other liabilities ............................ 40,543 47,411 7.3 8.6

Total liabilities ............................. 271,645 262,120 48.7 47.3Capital & assigned surplus.................. 79,092 79,147 14.2 14.3Unassigned surplus............................ 206,669 213,179 37.1 38.4

Total policyholders’ surplus............ 285,761 292,326 51.3 52.7

Total liabilities & surplus ............... 557,405 554,446 100.0 100.0



CONSOLIDATED SUMMARY OF 2016 OPERATIONS ($000)

Statement of Income 2016Funds Provided from

Operations 2016Premiums earned............ 247,178 Premiums collected......... 243,182

Losses incurred ............ 190,742Benefit & loss-related pmts

178,931LAE incurred .............. 28,372Undrw expenses incurred

54,331LAE & undrw expenses paid

80,727Other expense incurred.. 5 Other income/expense ... …

Net underwriting income -26,272 Undrw cash flow ............ -16,476Net investment income.... 13,522 Investment income.......... 18,654

Other income/expense ... 2,625 Other income/expense ... 2,625

Pre-tax oper income ... -10,125Pre-tax cash operations

4,804Realized capital gains...... 62Income taxes incurred ..... -2,178 Income taxes pd (recov)... 6,474

Net income................ -7,884 Net oper cash flow...... -1,670



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