AM Best Withdraws Credit Rating of Farmers Mutual Insurance Co. of Michigan
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 C++ (Marginal) and the Long-Term ICR of ‘b+’ (Marginal) of Farmers Mutual Insurance Company of Michigan (FMIC) (Coldwater, MI). The outlook of the FSR is stable. Concurrently, AM Best has withdrawn these Credit Ratings (ratings) as the company has requested to no longer participate in AM Best’s interactive rating process.
The ratings reflect FMIC’s balance sheet strength, which AM Best assesses as adequate, as well as its marginal operating performance, very limited business profile and appropriate enterprise risk management.
The negative outlook of the Long-Term ICR reflects pressure on the overall balance sheet strength assessment associated with recent declines in surplus and subsequently risk-adjusted capitalization. Additionally, the increased volatility in underwriting results has the potential to erode capital and overall balance sheet strength further.
Following a slight decline in 2023, modest capital erosion through the first half of 2024 continues to be a product of FMIC’s marginal operating performance driven by increased volatility in net underwriting losses, AM Best said.
The credit rating agency said management has been challenged by the company’s very limited business profile as a single-state property predominant writer in Michigan focused on policyholders in rural areas across the lower peninsula of the state. Product offerings primarily consist of homeowners’ multiple peril, followed by fire and allied lines.
Due to the company’s geographic and product concentrations, its results are exposed to frequent and severe weather-related events, as well as fire losses. Additionally, FMIC faces an elevated potential to regulatory challenges within the state. While management continues to implement corrective actions as of the June 2024 financial statement, these mitigation strategies have yet to gain material traction to strengthen the capital position.