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A.M. Best Co. has upgraded the financial strength rating to A-(Excellent) from B++ (Good) and issuer credit rating to “a-“ from “bbb+” of Farmers Mutual Insurance Company (Farmers) (Whitehall, WV). The outlook for both ratings has been revised to stable from positive.
The rating actions are based on Farmers’ adequate level of capitalization driven primarily by its low underwriting leverage, several years of profitable operating results and a long-standing local market presence in its single state of operation. These positive rating factors are attributed to the company’s focus on profitability within in its business niche and its long-term agency relationships. Over the past several years, the company reported above average operating income as a result of its favorable underwriting results and a steady flow of investment income. Through periods of competitive market conditions, management has maintained its underwriting and pricing discipline. The ratings further reflect the expectation that Farmers will continue to strengthen its risk-adjusted capitalization and out-perform the operating results of the composite average.
As a property predominant writer with a geographic concentration in West Virginia, Farmers’ earnings remain susceptible to localized and severe weather-related events as well as changes in the regulatory environment and competitive market conditions. Additional offsetting rating factors include the company’s elevated expense position, mainly due to its profit sharing plan and technological upgrades.
However, these factors are partially mitigated by Farmers’ five-year average pure loss ratio that outperforms the composite.
Factors that could trigger negative rating actions include excessive premium growth or significant deterioration in Farmers’ operating performance that may cause a material decline in its risk-adjusted capitalization.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Catastrophe Analysis in A.M. Best Ratings”; and “Understanding BCAR for Property/Casualty Insurers.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
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