Best’s News & Research Service - May 13, 2014 02:43 PM (EDT)
A.M. Best Revises Outlook to Stable for Ratings of Farmers Mutual Fire Insurance Company of Branch County
Oldwick //BestWire// - A.M. Best has revised the outlook to stable from negative and affirmed the financial strength rating of C++ (Marginal) and the issuer credit rating of "b" of Farmers Mutual Fire Insurance Company of Branch County (FMFBC) (Coldwater, MI).
The revised outlook represents the company's moderating underwriting leverage, improving underwriting performance, more-than-adequate balance sheet liquidity, recent addition to surplus and its long-standing market presence in Michigan. However, the company's long-term trend of unprofitable results as indicated by the negative returns on equity and revenue on a five- and 10-year average basis has yet to be replaced by sustained profitability. In recent years, declines in FMFBC's surplus have plateaued due to an improvement of underwriting standards, and the company has been able to add to surplus. Additionally, due to its geographic concentration of property risks in Michigan, the company remains exposed to severe weather-related events and competitive and regulatory market conditions. Furthermore, FMFBC's expense ratio continues to strain profitability, resulting in combined ratios that consistently exceeded the composite.
Given the company's current stable outlook, A.M. Best does not foresee downgrading or placing a negative outlook upon the ratings in the near term. However, this could occur if the company were to resume incurring material losses in its capitalization; have a further reduction in the profitability of its core book of business, (despite recent corrective efforts); be unable to contain its exposure to catastrophic events within its underwriting footprint with the current set of preventative measures; be unable to contain its current growth pattern; or have substantial adverse reserve development relative to its peers, as well as the industry's averages. Positive rating actions could occur if FMFBC continues to narrow its level of fluctuation in its operating results and grow premium and capital at its current planned rates.
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. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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