Standard & Poor’s lowered its counterparty credit and financial strength ratings on Farmers Insurance Exchange group (Farmers) to “AA-” from “AA+” and placed the ratings on CreditWatch negative.
At the same time, S&P lowered its subordinated debt rating on the Farmers surplus notes to “A-” from “A+” and placed it on CreditWatch negative.
The ratings actions and CreditWatch status reflect weakening operating performance in a highly competitive personal lines sector, reduced, though still adequate level of capitalization, and limited financial flexibility.
Partially offsetting these weaknesses are Farmers’ solid business position and its strategic importance to Zurich Financial Services (Zurich) as evidenced by its investment in deeply subordinated surplus notes.
The CreditWatch status is expected to be resolved in the fourth quarter of 2001 following a full-year review of Farmers’ business plan and financial reforecast, including capital management solutions, at which point the ratings may be affirmed or lowered one notch.
Although Zurich does not own Farmers and bears no direct financial impact from Farmer’s underwriting performance, the management fees earned by Farmers Group Inc. provide a steady earnings stream that is integral to Zurich’s strategy of enhancing the stability of its financial profile.
As a consequence, S&P considers Zurich’s relationship to Farmers strategically important and the ratings on Farmers’ benefit from this implicit support.
Topics Agribusiness
Was this article valuable?
Here are more articles you may enjoy.
KCC Says Isaias Insured Losses to Be $3 Billion; AM Best Calls Storm an Earnings Event 
Insurer Rolls Out Policy to Protect Data Centers Against Growing Backlash 
Isaias: 47,000 Claims and $582M in Losses in Florida So Far, OIR Reports 
Viewpoint: Beware These Commercial Auto Endorsements! 
