OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best Co. has downgraded the financial strength rating to A- (Excellent) from A (Excellent) and issuer credit rating to “a-” from “a” of Farmers Mutual of Tennessee (Farmers of Tennessee) (Knoxville, TN). The outlook for both ratings is negative.
The rating downgrades of Farmers of Tennessee reflect its trend of poor underwriting performance over several years, surplus loss and decline in risk-adjusted capitalization. Farmers of Tennessee operates in a single state, creating a geographic concentration that exposes earnings and surplus to localized weather events. This was evident in several recent years, as severe storms generated a significant number of claims and sizable gross losses; however, the company’s comprehensive reinsurance program mitigated much of these losses. In addition, Farmers of Tennessee has experienced an increase in fire claims, which further dampened its underwriting performance.
Farmers of Tennessee continues to maintain adequate risk-adjusted capitalization that supports the rating, which is derived from its conservative underwriting leverage. In addition, Farmers of Tennessee possesses excellent liquidity measures and has a long-standing local market presence.
Further negative rating action may occur if operating losses continue beyond management’s expectations and cause a material deterioration in policyholders’ surplus.
The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Property/Casualty Insurers”; and “Catastrophe Analysis in A.M. Best Ratings.” Methodologies can be found at www.ambest.com/ratings/methodology.
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A.M. Best Company
Frederick DeLeon, 908-439-2200, ext. 5175
Senior Financial Analyst
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
Rick Decker, 908-439-2200, ext. 5423
Assistant Vice President
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
Source: A.M. Best Company