Happenings, Insights, Thought Leadership
The Farm Credit System Captive Insurance Company was able to deliver strong patronage returns for 2017 and continued exceptional customer service to its member organizations, despite facing underwriting challenges that reduced net income significantly compared to 2016.
Net income for 2017 totaled $5.4 million compared to $10.3 million in 2016, a decrease of $4.9 million or 47.9%. This reduction stemmed primarily from significant claim developments in several lines of coverage, most notably Directors and Officers and auto liability coverage.
“In any other insurance company, a reduction in net income like this would be cause for concern, but because the Captive is owned by its Farm Credit members, it means that the System members were getting their claims paid,” says Larry Lawson, Executive Vice President, Risk Management and Insurance Services. “The Captive’s primary purpose isn’t to make money, it’s to provide essential coverages to our members to protect them against their insurable risks.”
Net income losses were offset somewhat by a $1.1 million, or 6.5 %, increase in premiums, due to the addition of the medical stop-loss line of coverage and continued exposure growth. Net investment income decreased from the prior year by $0.2 million, or -6.6%, to $3.2 million, driven by changes in realized and unrealized losses and continued erosion in book yield.
“The Captive retains a very strong capital position, as evidenced by the A rating it has earned from A.M. Best, which rates insurance companies, and their ability to continue to pay claims,” says David Burlage, Chair of the Captive board of directors and Chief Financial Officer of CoBank. “The Captive’s board and management meets regularly with our actuary to assess our financial position, and will continue to remain focused on ensuring we deliver on our mission so our Farm Credit members can remain focused on delivering on theirs.”
Despite the reduction in net income, the Captive’s board elected to pay $7 million in patronage dividends in 2018, the same level as in 2017. This is possible because of a capital surplus built over the past 30 years of careful financial and operational management.
“The Farm Credit Captive is extremely well-managed by a sophisticated and knowledgeable team that clearly understands both the industry and their customers,” says Mark Herman, an outside director on the Captive board and an insurance industry consultant. “The Captive’s management is consistent with that of a commercial insurance company and the team is diligent in ensuring that they’re doing all the right things to continue to be an outstanding insurance provider.”
The Captive also continued to deliver superior service, handling 1,001 claims, 765 of which were newly opened during the 2017 year. The Risk Management and Insurance Services team closed 778 claims, with 223 still open at the end of the year. Claims payments totaled nearly $8 million.
Also in 2017, the Captive began a major customer service platform improvement initiative with the implementation of Origami, an industry-leading insurance management information system. Origami was rolled out to members in January 2018, and will continue to be enhanced and configured to most effectively meet the System’s needs.
“Looking forward, we’ll continue to capitalize on the strength of our collective purchasing power to enhance our ability to deliver service and expand our insurance coverages to meet our members’ needs,” says Larry. “We’ll also continue to maintain a high level of surplus capital to ensure that we’ll be able to sustain the value we deliver to the System.”
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