S&P Affirms Farmers Auto Insurance Assn. `BBBpi' FSR
18 January 2001
S&P Affirms Farmers Auto Insurance Assn. `BBBpi' FSR
NEW YORK--Standard & Poor's--Jan. 18, 2001--Standard & Poor's today affirmed its triple-'Bpi' financial strength rating on Farmers Automobile Insurance Assn. (Farmers Auto) and its related pool member, Pekin Insurance Co.The rating is based on the pool's extremely strong capitalization, partially offset by declining underwriting profitability and volatility in its investment results.
A reciprocal company based in Pekin, Ill., Farmers Auto (NAIC: 24201) mainly provides automobile, workers' compensation, garage liability, business owners, umbrella, commercial multi-peril, homeowners, motorcycle, recreational vehicle, and mobile homeowners' coverages, which are distributed primarily through independent general agents.
The company, which began business in 1921, is licensed in Illinois, Indiana, Iowa, and Wisconsin and is a member of Pekin Insurance Group.
Major Rating Factors:
| -- | The rating is based on the companies' participation in an interaffiliate pool, which consists of Farmers Auto (80%) and Pekin Insurance Co (20%). |
| -- | At year-end 1999, capitalization was extremely strong, as indicated by a Standard & Poor's capital adequacy ratio of 254.2%. Farmers Auto's surplus, which was $251.1 million at year-end 1999, has grown at a compound annual rate of 14.8% since 1992. The gain in surplus from 1998 was composed mainly of $21.2 million in net unrealized capital gains. However, the company's surplus decreased to $232 million, primarily as a result of net unrealized capital losses of $21.4 million through the third quarter of 2000. |
| -- | Operating performance has been good, with a time-weighted ROR from 1996 to 1999 of 7.1%. |
| -- | The company's two-year reserve development ratio has been favorable but volatile, with an average reserve release of 17.8% with respect to surplus since 1995. The redundancy ratios have ranged from 25.7% to 10.8% over the last five years. |
| -- | The company has a limited geographic diversification: 52% of its business derives from Illinois. |
Ratings with a 'pi' subscript are insurer financial strength ratings based on an analysis of an insurer's published financial information and additional information in the public domain. They do not reflect in-depth meetings with an insurer's management and are therefore based on less comprehensive information than ratings without a 'pi' subscript. Ratings with a 'pi' subscript are reviewed annually based on a new year's financial statements, but may be reviewed on an interim basis if a major event that may affect the insurer's financial security occurs. Ratings with a 'pi' subscript are not subject to potential CreditWatch listings.
Ratings with a 'pi' subscript generally are not modified with "plus" or "minus" designations. However, such designations may be assigned when the insurer's financial strength rating is constrained by sovereign risk or the credit quality of a parent company or affiliated group, Standard & Poor's said.--CreditWire.