OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has revised the outlook to positive from stable for the Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the Financial Strength Rating (FSR) of B++ (Good) and the Long-Term ICR of “bbb” of The Farmers Fire Insurance Company (Farmers) (York, PA). The outlook of the FSR remains stable.
The Credit Ratings (ratings) reflect Farmers’ balance sheet strength, which AM Best categorizes as very strong, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management (ERM).
The revision in the Long-Term ICR outlook to positive reflects improved operating performance in recent years driven by management’s underwriting initiatives that have stabilized results. Based on these actions, underwriting performance, as measured by the company’s five-year average combined ratio, has improved to a level that is comparable to the personal property composite. AM Best’s expectation is for sustained improvement in operating performance metrics with moderate volatility from weather-related events and equity market volatility while maintaining a very strong level of balance sheet strength.
Farmers’ balance sheet strength reflects the strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), and its diversified investment portfolio, which has trended toward increased allocations in high quality fixed income securities to mitigate exposure to shifts in the equity market.
The balance sheet further benefits from an effective reinsurance program with high quality reinsurers and moderate reinsurance dependence. These strengths are partially offset by modestly elevated underwriting leverage and historically unfavorable loss reserve trends that have improved in recent years, attributed to management’s reserve-strengthening efforts. The limited business profile reflects Farmers’ product and geographic spread that focuses on property business written solely in Pennsylvania. AM Best considers the ERM program to be appropriate for the company’s risk profile. The ERM process includes a risk-awareness culture embedded throughout the company with its board actively engaged.
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