The Implications of AM Best Withdrawing Agrinational's Credit Ratings for Captive Insurance and Parent Company Support Models

In a move that has sent ripples through the captive insurance sector, AM Best withdrew its Financial Strength Rating (FSR) of A- (Excellent) and Long-Term Issuer Credit Rating (LTICR) of “a-” (Excellent) for Agrinational Insurance Company on August 8, 2025. This decision, driven by Agrinational's request to exit AM Best's interactive rating process, underscores a critical juncture for parent-backed captive insurers and the systemic risks inherent in their reliance on corporate parent support. For investors, the withdrawal raises pressing questions about the long-term stability of alternative risk transfer (ART) strategies and the credit profiles of conglomerates like Archer Daniels Midland Company (ADM), Agrinational's parent.

The Agrinational-ADM Dynamic: A Case Study in Captive Insurance

Agrinational, a captive insurer based in Vermont, serves as ADM's risk management arm, insuring property, liability, and other exposures for the global agricultural giant and its subsidiaries. Its role is emblematic of a broader trend: large corporations increasingly use captives to self-insure, reduce costs, and align risk management with strategic objectives. However, this model hinges on the financial health of the parent company. ADM, a Fortune 500 agribusiness, provides both implicit and explicit support to Agrinational, including capital injections and governance oversight.

The withdrawal of Agrinational's ratings by AM Best does not signal a downgrade in its creditworthiness but rather a procedural shift. AM Best's policy mandates that companies opting out of its interactive rating process lose their ratings. This action, while technical, highlights a vulnerability: parent-backed captives often derive their credibility from third-party ratings, which lenders, reinsurers, and regulators use to assess solvency. Without a rating, Agrinational's ability to secure reinsurance or attract third-party partners may face friction, particularly in markets where unrated captives are viewed with caution.

Systemic Risks in Parent-Backed Captives: A Closer Look

The Agrinational case illuminates systemic risks that extend beyond a single entity. Parent-backed captives are inherently interdependent, with their financial resilience tied to the parent's credit profile. AM Best's earlier negative outlook on Agrinational—prompted by underwriting volatility and property losses—revealed a broader challenge: captives often lack the diversification and risk-adjusted capitalization of traditional insurers. When a parent company's credit rating weakens, the captive's perceived stability erodes, creating a feedback loop that can amplify financial stress.

For ADM, this interdependence is a double-edged sword. While Agrinational's captive model reduces insurance costs and enhances risk control, it also exposes ADM to potential contagion risks. If Agrinational's underwriting losses persist or if ADM's own credit profile faces downward pressure, the company's ability to meet its obligations could be questioned. This is particularly relevant for ADM's alternative risk transfer strategies, which rely on Agrinational's capacity to absorb large claims.

The Broader Implications for Captive Insurance

The withdrawal of Agrinational's ratings reflects a growing scrutiny of captive insurance structures. AM Best has long emphasized that parent-backed captives must maintain operational independence and robust capitalization to avoid systemic risks. Yet, the reliance on parent company support—whether through explicit guarantees or implicit expectations—creates a tension between cost efficiency and financial resilience.

Regulatory developments further complicate the landscape. The National Association of Insurance Commissioners (NAIC) and global regulators are tightening oversight of captives, particularly those involved in high-risk lines like variable annuities and long-term care. For ADM and similar conglomerates, the challenge lies in balancing cost savings with compliance, ensuring that their captive structures meet evolving standards without compromising strategic flexibility.

Investment Considerations: Navigating the Risks

For investors, the Agrinational-ADM case offers several lessons. First, the withdrawal of a captive's rating should not be dismissed as a technicality. It signals a potential shift in how captives are perceived by the market, particularly if other parent-backed insurers follow suit. Investors in ADM should monitor its credit profile closely, assessing whether the company's exposure to Agrinational's underwriting risks could impact its broader financial stability.

Second, the case highlights the importance of diversification in alternative risk transfer strategies. While captives can reduce costs, overreliance on a single structure—especially one tied to a parent company's fortunes—can create vulnerabilities. Investors might consider companies that employ a mix of captives, traditional insurance, and reinsurance to mitigate concentration risks.

Finally, the broader captive insurance market is likely to see increased demand for transparency and independent ratings. As AM Best and other agencies continue to refine their methodologies, companies that proactively engage with rating agencies and demonstrate strong enterprise risk management (ERM) practices will be better positioned to attract capital and maintain credibility.

Conclusion: A Call for Vigilance and Adaptation

The withdrawal of Agrinational's ratings by AM Best is more than a procedural update—it is a wake-up call for the captive insurance sector. Parent-backed captives, while valuable tools for risk management, must navigate a complex web of systemic risks, regulatory scrutiny, and market expectations. For ADM and its peers, the challenge lies in maintaining the benefits of captive structures while ensuring their resilience in an uncertain economic environment.

Investors, in turn, must remain vigilant, scrutinizing not only the credit profiles of parent companies but also the structural integrity of their captive insurers. In a world where systemic risks loom large, the ability to adapt—whether through diversified risk transfer strategies or enhanced governance—will separate the resilient from the vulnerable.