OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICRs) of “a” of The Farmers Automobile Insurance Association and its wholly owned subsidiary, Pekin Insurance Company (together known as Pekin). The outlooks of these Credit Ratings (ratings) remain negative. Concurrently, A.M. Best has affirmed the FSR of A- (Excellent) and the Long-Term ICR of “a-” of Pekin Life Insurance Company (Pekin Life) [PKIN.OTC]. The outlooks of these ratings are stable. All companies are domiciled in Pekin, IL.
Pekin Life is a publicly traded, over-the-counter company, although the majority of its shares are owned by The Farmers Automobile Insurance Association.
The ratings of Pekin reflect its balance sheet strength, which A.M. Best categorizes as strongest, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM). The negative outlooks reflect deterioration in underwriting performance that has resulted in underwriting and operating metrics falling short of composite averages.
Pekin’s balance sheet strength reflects the strongest level of risk-adjusted capitalization, a conservative investment portfolio and historically favorable reserve development. Partially offsetting these positive rating factors is the elevated reserve leverage compared with the composite. Pekin’s operating performance has been volatile, driven by weather-related losses and rising loss costs in the auto business. However, A.M. Best expects underwriting initiatives and updated product offerings to improve results prospectively. Pekin maintains a neutral business profile with a variety of property/casualty (P/C) products distributed exclusively through independent agents. Management continues to enhance its ERM program to support the organization’s risk profile.
Negative rating action could occur if underwriting and operating performance continue to compare unfavorably with composite averages.
The ratings of Pekin Life reflect its balance sheet strength, which A.M. Best categorizes as strongest, as well as its marginal operating performance, neutral business profile and appropriate ERM.
The ratings of Pekin Life also reflect its integral role and positive contribution to its P/C parent organization, as well as its diversified product portfolio, strongest level of risk-adjusted capitalization and high quality investment portfolio. Partially offsetting these rating factors are the company’s fluctuating operating results and its geographical business concentration risk. The main operating pressures experienced by Pekin Life are its lack of scale to support the diverse product line and its relatively high operating expenses.
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