AM Best Revises Issuer Credit Rating Outlook to Negative for Farmers Mutual Insurance Company of Nebraska

OLDWICK, N.J.--(BUSINESS WIRE)--
AM Best has revised the outlook to negative from stable for the Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term ICR of “a+” (Excellent) of Farmers Mutual Insurance Company of Nebraska (Farmers of Nebraska) (Lincoln, NE). The outlook of the FSR is stable.

In addition, AM Best has assigned a Long-Term Issue Credit Rating of “a-” (Excellent) to the $100 million, 9% surplus notes, due May 2044, issued by Farmers of Nebraska. The outlook assigned to this Credit Rating (rating) is negative.

The ratings reflect Farmers of Nebraska’s balance sheet strength, which AM Best assesses as strongest, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).

The revised Long-Term ICR outlook to negative for Farmers of Nebraska reflects a deterioration in policyholders’ surplus due to significant underwriting losses driven by weather events the company experienced in 2022 and to a lesser extent in 2023. As a result of the deterioration in surplus, some balance sheet strength metrics have begun to trail similarly rated peers. The issuance of the surplus notes should mitigate surplus deterioration but exposes the company to potential strains from debt servicing, which could have a negative impact on future operating cash flows.

The company balance sheet strength assessment of strongest is supported by its risk-adjusted capitalization being at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). Additional factors include the companies’ favorable liquidity and generally consistent and favorable loss reserve development, which are partially offset by underwriting leverage and reinsurance dependence metrics that are modestly above the composite’s average. The adequate operating performance reflects the company’s continued underwriting discipline, despite significant losses seen in 2022 and net income in just three of the past five years. The neutral business profile continues to focus on the company’s market-leading position in the personal lines business in its core states of Nebraska and South Dakota. Farmers of Nebraska’s ERM program is considered appropriate for its risk profile and includes prudent reinsurance protection with comprehensive risk mitigation strategies.

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 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 © 2024 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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Daniel Mangano, CPCU

Senior Financial Analyst

+1 908 882 1907

[email protected]

Joseph Burtone
Director

+1 908 882 1678

[email protected]

Christopher Sharkey
Associate Director, Public Relations

+1 908 882 2310

[email protected]

Al Slavin
Senior Public Relations Specialist

+1 908 882 2318

[email protected]

Source: AM Best