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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - JUNE 11, 2013 12:00 AM (EDT)
A.M. Best Co. has revised the outlook to stable from positive and affirmed the financial strength rating of A- (Excellent) and issuer credit rating of “a-” of Farmers Union Mutual Insurance Company (Farmers Union) (headquartered in Great Falls, MT).
The revised outlook reflects the deterioration in Farmers Union’s operating results in recent years primarily due to its unfavorable underwriting performance. This was particularly evidenced in 2010 and 2012, by sizable year-end underwriting losses driven by severe and frequent weather-related events and increased fire losses. In response, management has been tightening underwriting guidelines and increasing its rates in order to return Farmers Union to its historical trend of favorable operating performance. However, as a single state property writer, Farmers Union’s overall results will continue to be exposed to severe and frequent weather-related events as well as economic, judicial and regulatory issues.
The affirmation of the ratings is based on Farmers Union’s solid risk-adjusted capitalization relative to its current ratings, conservative investment portfolio with investments mostly in high quality bonds, favorable underwriting leverage measures and its long-standing market presence in Montana. In addition, Farmers Union’s net income has been positive over the last five years despite its unfavorable underwriting performance in recent years. A.M. Best also recognizes Farmers Union’s prudent catastrophe reinsurance program to mitigate losses associated with severe weather-related catastrophe events.
Negative rating actions could occur if Farmers Union’s underwriting performance continues to deteriorate and/or there is a reduction in its overall risk-adjusted capitalization. Any positive rating actions are dependent upon the company’s consistent and profitable underwriting and operating profitability while maintaining solid capitalization.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source.