Fitch Affirms The Farmers Exchanges' IFS Ratings at 'A+'
CHICAGO -- January 24, 2013
Fitch Ratings has affirmed the 'A+' Insurer Financial Strength (IFS) rating of
The Farmers Insurance Exchange (Farmers) and its affiliated Property &
Casualty Insurers. The Rating Outlook is Stable.
A full rating list of rating actions appears at the end of this press release.
The ratings for Farmers reflect Fitch's view of Farmers' strategic importance
as 'Very Important' to the Zurich Insurance Group (ZIG) in accordance with
Fitch's insurance group rating criteria. Based strictly on Farmers' own
financial profile, Fitch believes the stand-alone IFS rating of the company is
'A-'. Farmers' strategic importance is an important consideration toward
providing Farmers' ratings with a two-notch uplift towards ZIG's insurance
Farmers operates as a reciprocal exchange which is ultimately owned by its
policyholders. A separate organization called Farmers Group, Inc. (FGI), a
wholly owned subsidiary of ZIG serves as the attorney-in-fact for Farmers and
collects a management fee for non-claims related management services of up to
20% of Farmers' annual gross written premium. ZIG, which is FGI's ultimate
parent, recorded $2.1 billion in management fees from Farmers through the
first nine months of 2012.
Farmers ratings reflect the support and financial flexibility provided by the
larger ZIG organization, which is manifested by the management agreement
between FGI and the policyholders of Farmers, as well as by the numerous,
sizable investments made by ZIG subsidiaries in surplus notes issued by
Farmers, and by the existence of an all lines quota share reinsurance
agreement through which The Farmers Exchanges ceded 20% of the company's
business to ZIG in 2012.
The stand-alone rating of Farmers reflects the company's strong competitive
position as one of the largest personal lines insurers in the U.S., a track
record of stable operating results, and the company's high-quality investment
portfolio that is dominated by highly rated fixed income securities.
These positive factors are partially offset by relatively high statutory
operating leverage, geographic concentration, and Fitch's belief that Farmers'
underwriting results, which have averaged near break-even over the past five
years, compare unfavorably to several of the company's closest peers over the
same time period.
Fitch believes that ZIG will maintain its ownership in FGI and remain
committed to accessing the North American personal lines insurance market
through Farmers. In evaluating this commitment, Fitch will place particular
emphasis on FGI's earnings contribution to ZIG, as well as other factors
including ZIG's willingness and ability to provide reinsurance and capital
support to Farmers if needed.
Key rating triggers that could lead to a ratings downgrade include a downgrade
of ZIG's ratings or an indication of weakening in ZIG's willingness or ability
to continue its investment and reinsurance relationship with Farmers.
Moreover, if Farmers' stand-alone credit profile were to worsen then Fitch
could downgrade the Farmers' ratings. Such deterioration could be evidenced by
declining underwriting results or overall profitability, or if net written
premium-to-surplus and net leverage, were to exceed 3.0x and 6.5x,
respectively, versus average levels of roughly 2.5x and 5.5x, respectively,
observed over the past several years.
Key rating triggers that could lead to a ratings upgrade center around an
improvement in Farmers' stand-alone credit profile including improved
operating performance, and improved capitalization metrics such as a reduction
in operating leverage (net written premium-to-surplus) and net leverage ratio
to below 2.0x and 4.0x, respectively.
Fitch affirms the following ratings with a Stable Rating Outlook:
Farmers Insurance Exchange
Truck Insurance Exchange Truck Underwriters Association
Fire Insurance Exchange Fire Underwriters Association
Mid-Century Insurance Company
Farmers Insurance Company of Arizona
Farmers Insurance Company of Idaho
Farmers Insurance Company, Inc.
Farmers Insurance Company of Oregon
Farmers Insurance Company of Washington
Farmers Insurance Hawaii, Inc.
Illinois Farmers Insurance Company
Texas Farmers Insurance Company
Farmers Insurance of Columbus, Inc.
Farmers Texas County Mutual Insurance Company
Mid-Century Insurance Company of Texas
Civic Property and Casualty Company
Exact Property and Casualty Company
Neighborhood Spirit Property and Casualty Company
Farmers New Century Insurance Company
Farmers Reinsurance Company
Foremost Insurance Company Grand Rapids, Michigan
Foremost Signature Insurance Company
American Federation Insurance Company
Foremost Property and Casualty Insurance Company
Foremost County Mutual Insurance Company
Foremost Lloyds of Texas
Bristol West Casualty Insurance Company
Bristol West Insurance Company
Bristol West Preferred Insurance Company
Coast National Insurance Company
Security National Insurance Company
21st Century Assurance Company
21st Century North American Insurance Company
21st Century Superior Insurance Company
21st Century Pinnacle Insurance Company
21st Century Pacific Insurance Company
21st Century Auto Insurance Company of New Jersey
21st Century Centennial Insurance Company
American Pacific Insurance Company, Inc.
21st Century Advantage Insurance Company
21st Century Indemnity Insurance Company
21st Century National Insurance Company, Inc.
21st Century Preferred Insurance Company
21st Century Premier Insurance Company
21st Century Security Insurance Company
21st Century Casualty Company
21st Century Insurance Company
21st Century Insurance Company of the Southwest
Additional information is available at 'www.fitchratings.com'. The issuer did
not participate in the rating process other than through the medium of its
public disclosure. The ratings above were unsolicited and have been provided
by Fitch as a service to investors.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (Jan. 11, 2013).
Applicable Criteria and Related Research:
Insurance Rating Methodology— Amended
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PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
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METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
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COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM
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Christopher A. Grimes, CFA, +1-312-368-3263
70 W. Madison
Chicago, IL 60602
James B. Auden, CFA, +1-312-368-3146
Donald F. Thorpe, CFA, +1-312-606-2353
Media Relations, New York
Brian Bertsch, +1-212-908-0549
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