U.S. Farm Bureaus See 13% Premium Growth Amidst Underwriting Challenges

The U.S. property/casualty (P/C) farm bureau sector has reported a significant 13% increase in premiums over the past two years, reaching $17.3 billion in 2022, up from $12.6 billion. This growth, as highlighted in a recent AM Best report, has been primarily fueled by personal auto, homeowners, and farmowners’ lines of business, mirroring the broader expansion observed within the P/C industry. Despite this positive trend in premium growth, farm bureaus are navigating a complex landscape of underwriting challenges, largely due to adverse weather events and inflationary pressures.

The market share for farm bureaus within their core lines of business has seen a decline, even as they face geographic and business concentration risks. Notably, two-thirds of the rated companies derive a significant portion of their premiums from a single state, exposing them to heightened catastrophe risks and regulatory changes. Christopher Lewis, a senior financial analyst at AM Best, points out that while farm bureaus generally maintain high policy retention rates, surpassing 90% and above the industry average, the issue of market share concentration remains a critical concern.

To counter these challenges, some farm bureaus are diversifying by expanding their business operations beyond their home states. This strategy, while beneficial in the long term, presents immediate hurdles such as slow premium growth. A notable approach to overcoming these obstacles includes the acquisition of smaller insurers outside their primary territories, facilitating premium diversification.

Moreover, the report sheds light on farm bureaus that operate in both P/C and life/annuity lines, noting that this dual focus has helped mitigate profitability challenges in certain P/C lines. The integration of life/annuity business lines offers strategic advantages, including enhanced distribution networks, pricing flexibility, management expertise, and capital support. The life/annuity segment within these farm bureaus has experienced fluctuations in aggregate direct premiums, recently trending towards protection products rather than annuities.