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FOR IMMEDIATE RELEASE
OLDWICK - NOVEMBER 13, 2014 09:26 AM (EST)
A.M. Best has downgraded the financial strength rating (FSR) to B++ (Good) from A- (Excellent) and the issuer credit rating (ICR) to "bbb+" from "a-" of The Farmers Fire Insurance Company (Farmers Fire) (York, PA). The outlook for the FSR has been revised to stable from negative, while the outlook for the ICR is negative.
The rating downgrades primarily reflect Farmers Fire's volatile operating results due to a continuing unfavorable underwriting performance in conjunction with declining surplus through Sept. 30, 2014. Farmers Fire's unfavorable underwriting performance has been due to a series of frequent and severe weather-related events, which included hurricanes, hail and windstorm events, and winter losses along with increased fire losses. As a result, Farmers Fire has reported significant underwriting losses in four of the past five years which have continued into 2014. As a single state property writer, Farmers Fire's surplus and operating results are exposed to a wide variety of weather-related events. However, an adequate reinsurance program is maintained to partially mitigate this risk. In addition, management continues to focus on improving operating performance through rate increases, frequent inspections, strict agency management, re-underwriting of the personal lines book, strengthening of reinsurance program and enhanced technology, while increasing top-line growth by targeting specific personal and commercial lines risk.
These negative rating factors are partially offset by Farmers Fire's adequate risk-adjusted capitalization, moderate underwriting leverage and generally positive unrealized capital gains, as well as its long-standing agency relationship and local market presence. In addition, despite an unfavorable underwriting performance, Farmers Fire continues to maintain adequate balance sheet liquidity and reported favorable loss reserve development in recent years on both an accident- and calendar-year basis.
Ratings pressure may result if Farmers Fire has a continuation of underwriting losses and adverse operating results, which also could lead to weaker risk-adjusted capitalization. Removal of the negative outlook on the ICR is contingent upon Farmers Fire's ability to reverse its adverse operating performance to a consistent pattern of operating profitability, while maintaining supportive 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. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Key insurance criteria reports utilized:
A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.