Insurance

Farmers Insurance Group’s Ratings Downgraded By Moody’s

Farmers Insurance Group's Ratings Downgraded By Moody's

Farmers Insurance Group’s Ratings Downgraded By Moody’s

Farmers Insurance Group’s Ratings Downgraded By Moody’s

Farmers Insurance Exchange, the leading component of Farmers Insurance Group (Farmers), has had its insurance financial strength (IFS) rating cut to A3 from A2 and its surplus note rating downgraded to Baa3 (hyb) from Baa2 (hyb). Farmers’ rating outlook is steady.

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According to Moody’s, the rating downgrade for Farmers is due to the company’s high operating and financial debt, mediocre underwriting performance, and significant vulnerability to natural disasters.

The rating agency also downgraded the IFS ratings of other members of Farmers’ inter-company pool to A3 from A2, including Fire Insurance Exchange, Truck Insurance Exchange, and Mid-Century Insurance Company, among other affiliated insurers.

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Farmers Insurance Group’s Ratings Downgraded By Moody’s

Moody’s writes, “While Farmers has made some progress toward improving its underwriting results by raising premium rates and implementing underwriting actions, its surplus has remained relatively flat and earnings modest.

“High loss cost inflation, as well as higher reinsurance costs, will make it challenging for Farmers to reduce its operating and financial leverage.”

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Farmers hold a strong market presence as the seventh-largest personal lines writer in the US, says Moody’s, and its ratings reflect its cost-effective, largely captive agency distribution system, as well as its high-quality investment portfolio and support provided by Zurich.

Farmers 2021 acquisition of MetLife’s P&C business, rebranded Farmers Workplace Solutions (FWS), increased the company’s geographic diversification and distribution capabilities, says Moody’s, adding that the full benefits of owning FWS will emerge over time.

Farmers Insurance Group’s Ratings Downgraded By Moody’s

Despite this, the firm suggests, “These positives are offset by the group’s weak profitability, meaningful exposure to natural catastrophes although this is mitigated by outward reinsurance, loss accumulations from smaller, more frequent events (e.g., storms, wildfires), and aggressive operating and financial leverage.”

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Moody’s outlined some factors that could lead to a rating upgrade, which include a solid operating performance with combined ratios below 100%; adjusted financial and operating leverage declining below 38% and 6x, respectively; improved risk-adjusted capitalization; or rating upgrades of other major Zurich affiliates.


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