The rating downgrades of Farmers of Tennessee reflect its trend of poor underwriting performance over several years, surplus loss and decline in risk-adjusted capitalization. Farmers of Tennessee operates in a single state, creating a geographic concentration that exposes earnings and surplus to localized weather events. This was evident in several recent years, as severe storms generated a significant number of claims and sizable gross losses; however, the company’s comprehensive reinsurance program mitigated much of these losses. In addition, Farmers of Tennessee has experienced an increase in fire claims, which further dampened its underwriting performance.
Farmers of Tennessee continues to maintain adequate risk-adjusted capitalization that supports the rating, which is derived from its conservative underwriting leverage. In addition, Farmers of Tennessee possesses excellent liquidity measures and has a long-standing local market presence.
Further negative rating action may occur if operating losses continue beyond management’s expectations and cause a material deterioration in policyholders’ surplus.