Best’s News & Research Service - December 10, 2014 04:11 PM (EST)
A.M. Best Downgrades Ratings of Farmers Mutual of Tennessee
Oldwick //BestWire// - A.M. Best has downgraded the financial strength rating to B++ (Good) from A- (Excellent) and the issuer credit rating to "bbb+" from "a-" of Farmers Mutual of Tennessee (Farmers Mutual) (Knoxville, TN). The outlook for both ratings has been revised to stable from negative.
The rating actions reflect Farmers Mutual's unfavorable operating performance in most of the past five years, primarily due to elevated net underwriting losses, as reflected in its five-year average returns on revenue and equity that were negative for the period ending 2013. Management expects near-term profitability to improve following pricing, underwriting and claims action plans implemented in recent years. The company recorded favorable operating results in 2013 and in the second half of 2014, reversing the trend of several prior years. Solid net income was reported in 2013, as net investment income and capital gains supplemented a net underwriting gain, allowing the company to increase surplus in an amount greater than the previous year's surplus decline. Despite the recent improvement, the company's five-year average combined ratio through 2013 compared unfavorably with the personal property composite average. In addition, the company's single-state concentration of risk exposes it to weather-related events, as well as to market, regulatory and judicial issues.
Partially offsetting Farmers Mutual's negative rating factors are its adequate level of risk-adjusted capitalization that supports the ratings and its extensive local market knowledge and long-standing agency relationships.
There may be negative pressure on Farmers Mutual's ratings going forward if its operating performance deteriorates or there is a material decline in policyholders' surplus.
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.
Key insurance criteria reports utilized:
- Catastrophe Analysis in A.M. Best Ratings
- Risk Management and the Rating Process for Insurance Companies
- Understanding BCAR for Property/Casualty Insurers
This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best's Ratings & Criteria Center .
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