OLDWICK: AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” of Farmers Mutual Fire Insurance Company of McCandless Township.
The Credit Ratings reflect Farmers’ balance sheet strength, which AM Best categorizes as strong, as well as its adequate operating performance, limited business profile and marginal enterprise risk management (ERM).
The revised outlooks to negative reflect the downturn in underwriting and operating performance metrics in recent years that are no longer comparable to the composite. Operating losses have been attributed to severe weather-related events, elevated fire losses and water damage claims.
Underwriting initiatives to improve long-term performance have focused on weather loss mitigation strategies, inspections and re-underwriting efforts. However, the ultimate effectiveness of these actions remains uncertain.
Farmers’ balance sheet strength reflects very strong risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), partially offset by elevated common stock leverage and ongoing adverse reserve development, as well as limited scale and financial flexibility.
The limited business profile assessment reflects the company’s product and geographic spread, which is focused on property business in western Pennsylvania.
However, this exposure is partially mitigated through a comprehensive reinsurance program. AM Best views Farmers’ ERM as marginal, as the company lacks a formal ERM program or framework to identify and monitor organizational risks. However, third-party modeling and stress testing are used to evaluate catastrophe risks.