AM Best has revised the outlook for the Long-Term Issuer Credit Rating (Long-Term ICR) of Farmers Mutual Insurance Company of Nebraska (Farmers of Nebraska) from stable to negative, while affirming the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term ICR of “a+” (Excellent). The outlook for the FSR remains stable.
Additionally, AM Best has assigned a Long-Term Issue Credit Rating of “a-” (Excellent) to the $100 million, 9% surplus notes due May 2044 issued by Farmers of Nebraska. The outlook for this Credit Rating is negative.
The ratings reflect Farmers of Nebraska’s balance sheet strength, which AM Best assesses as the strongest, along with its adequate operating performance, neutral business profile, and appropriate enterprise risk management (ERM).
The revision of the Long-Term ICR outlook to negative is due to a deterioration in policyholders’ surplus caused by significant underwriting losses from weather events in 2022 and, to a lesser extent, in 2023. This deterioration has led some balance sheet strength metrics to lag behind similarly rated peers. While the issuance of surplus notes is expected to mitigate this deterioration, it also introduces potential strains from debt servicing, which could negatively impact future operating cash flows.
The company’s balance sheet strength is supported by its risk-adjusted capitalization at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). Other supporting factors include favorable liquidity and generally consistent and favorable loss reserve development. These strengths are partially offset by underwriting leverage and reinsurance dependence metrics that are slightly above the composite average. The adequate operating performance reflects the company’s continued underwriting discipline despite significant losses in 2022, with net income in just three of the past five years. The neutral business profile highlights the company’s market-leading position in personal lines business in Nebraska and South Dakota. Farmers of Nebraska’s ERM program is considered appropriate for its risk profile, including prudent reinsurance protection and comprehensive risk mitigation strategies.
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AM Best is a global credit rating agency, news publisher, and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company operates in over 100 countries, with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore, and Mexico City. For more information, visit www.ambest.com.
