Fitch Affirms The Farmers Exchanges' IFS Ratings at 'A+'

  Fitch Affirms The Farmers Exchanges' IFS Ratings at 'A+'

Business Wire

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
subsidiaries' ratings.

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

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=698731

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL,
COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM
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Contact:

Fitch Ratings
Primary Analyst
Christopher A. Grimes, CFA, +1-312-368-3263
Associate Director
Fitch, Inc.
70 W. Madison
Chicago, IL 60602
or
Secondary Analyst
James B. Auden, CFA, +1-312-368-3146
Managing Director
or
Committee Chairperson
Donald F. Thorpe, CFA, +1-312-606-2353
Senior Director
or
Media Relations, New York
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com
 
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