A.M. Best Downgrades Oklahoma’s Farmers Mutual Fire Insurance

October 17, 2012

A.M. Best Co. announced it has downgraded the financial strength rating to B+ (Good) from B++ (Good) and issuer credit rating to “bbb-” from “bbb” of Farmers Mutual Fire Insurance Co. (Farmers) in Okarche, Okla. The outlook for both ratings is negative.

The rating downgrades reflect the decline in Farmers’ risk-adjusted capitalization following several years of underwriting losses and increasing exposure to catastrophe losses that represent a significant percentage of policyholders’ surplus, the ratings agency said.

The company experienced several years of weather-related losses that impacted the profitability of its property book of business, which is concentrated in Oklahoma, Farmers’ single state of operation.

Partially offsetting these negative rating factors is Farmers’ relatively steady stream of investment income generated by a relatively conservative investment portfolio, as well as its long-standing agency relationships and local market knowledge in Oklahoma. In addition, several underwriting and operational strategies are being implemented to improve Farmers’ profitability.

Negative rating actions are possible if Farmers’ capitalization were to deteriorate to a level that no longer supports its current underwriting exposures, the announcement said.

Source: A.M. Best Company