AM Best Downgrades Issuer Credit Rating of Farmers Mutual of Tennessee

OLDWICK, N.J.--(BUSINESS WIRE)--
AM Best has downgraded the Long-Term Issuer Credit Rating (Long-Term ICR) to “bbb” (Good) from “bbb+” (Good) and affirmed the Financial Strength Rating (FSR) of B++ (Good) of Farmers Mutual of Tennessee (Farmers Mutual) (Knoxville, TN). The outlook of the FSR has been revised to negative from stable, while the outlook of the Long-Term ICR is negative.

The Credit Ratings (ratings) reflect Farmers Mutual’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.

The downgrade of the Long-Term ICR reflects the change in Farmers Mutual’s balance sheet strength assessment to strong from very strong due to significant decline in the company’s policyholder surplus, weakening balance sheet metrics and corresponding decline in the company’s risk-adjusted capitalization. The results were due mainly to sizable underwriting losses due to unusual catastrophe activity, inflation driven increases in loss costs, and elevated expense structure.

Farmers Mutual has implemented numerous initiatives such as increase rate statewide, apply inflation guard endorsement, and cancel poor performing accounts to improve the company’s profitability; the effectiveness of these efforts remains uncertain as the company continues to report adverse operating results and weakening balance sheet metrics. If these trends continue in the near to intermediate term, this could result in further negative rating actions.

AM Best views that the main environmental, social and governance (ESG) risk to Farmers Mutual is climate risk, with rising global temperatures contributing to higher frequency and severity of adverse weather events in Tennessee, such as tornadoes and other windstorm events. The company has a concentrated property portfolio in Tennessee. However, the company operates in an environment where its underwriting and investment profile are not exposed to so-called toxic assets and industries. Additionally, the company maintains a prudent reinsurance program to mitigate its natural catastrophe loss exposure, and thus, appropriately manages its ESG risks from climate change. There are no regulatory requirements relating to ESG, although the company regularly monitors developments to ensure its practices are compliant. The company operates in line with market peers, and at present, ESG factors are unlikely to impact the credit quality of the company over the short term.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2023 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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Phinthip Dezuzio

Senior Financial Analyst

+1 908 882 1736

phinthip.dezuzio@ambest.com

Christopher Sharkey
Manager, Public Relations

+1 908 882 2310

christopher.sharkey@ambest.com

Brian O’Larte

Director

+1 908 882 2212

brian.o’larte@ambest.com

Al Slavin
Senior Public Relations Specialist

+1 908 882 2318

al.slavin@ambest.com

Source: AM Best