Oldwick, N.J. (BUSINESS WIRE) - A.M. Best Co. has revised the outlook to positive from stable for the ratings of Farmers' Mutual Group (formerly Farmers' Mutual Insurance Association)(FMG) (New Zealand) and its core subsidiary, FMG Insurance Limited (FMGIL) (New Zealand).
Concurrently, A.M. Best has affirmed FMG's and FMGIL's financial strength rating of A- (Excellent) and issuer credit rating of "a-".
The rating affirmations reflect FMG's adequate capitalization, stable growth and good business retention. The ratings also consider the positive impact on risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio (BCAR), of FMG's continued reorganization of business.
The revision of the group's rating outlook reflects its stable earnings prospects and the expected growth in its risk-adjusted capitalization.
FMG's risk-adjusted capitalization exhibited reasonable growth during the year, due mainly to the positive group operating performance. FMG's combined ratio remained above 100% due predominantly to weather-related claims; however, its operating results remain profitable due to good investment returns. The rating recommendation is supported by FMG's adequate BCAR.
FMG's historical ties with regional New Zealand have contributed to good persistency in its underwriting portfolio and have resulted in it retaining a relatively stable share of its chosen market. The group's gross premium increased by 8.6% in 2008.
The decision to focus on the New Zealand general insurance business has resulted in asset sales, with income from the sale of assets and the transfer of risk (as a result of the sale of its businesses) substantially strengthening the group's BCAR.
These positive factors are partially offset by FMG's exposure to weather-related catastrophes, volatile underwriting performance and high expense ratio.
FMG's cost structure has been slightly higher than that of the market, partly as a function of its direct distribution model. As FMG covers approximately 3% of the New Zealand market, achieving greater economies of scale will increase the company's competitiveness going forward.
Increasing competition in rural insurance markets continues to exert pressure on FMG's profits. Further, similar to other insurance companies in New Zealand, the increase in premium rates has not kept pace with rebuilding costs, thus resulting in ever increasing loss ratios. Despite FMG's net assets being reasonably well protected by its reinsurance programs, it has experienced underwriting losses mainly due to weather-related events in the past two years.
Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers.
For more information, visit www.ambest.com.
A.M. Best Co. AnalystsPhilip Chung, CFA+852-2827-3409 philip.chung@ambest.comTerrence Wong, +852-2827-3403 terrence.wong@ambest.com or Public RelationsJim Peavy, +(1)
908-439-2200, ext. 5644 james.peavy@ambest.comRachelle Morrow,
+(1) 908-439-2200, ext. 5378 rachelle.morrow@ambest.com
Concurrently, A.M. Best has affirmed FMG's and FMGIL's financial strength rating of A- (Excellent) and issuer credit rating of "a-".
The rating affirmations reflect FMG's adequate capitalization, stable growth and good business retention. The ratings also consider the positive impact on risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio (BCAR), of FMG's continued reorganization of business.
The revision of the group's rating outlook reflects its stable earnings prospects and the expected growth in its risk-adjusted capitalization.
FMG's risk-adjusted capitalization exhibited reasonable growth during the year, due mainly to the positive group operating performance. FMG's combined ratio remained above 100% due predominantly to weather-related claims; however, its operating results remain profitable due to good investment returns. The rating recommendation is supported by FMG's adequate BCAR.
FMG's historical ties with regional New Zealand have contributed to good persistency in its underwriting portfolio and have resulted in it retaining a relatively stable share of its chosen market. The group's gross premium increased by 8.6% in 2008.
The decision to focus on the New Zealand general insurance business has resulted in asset sales, with income from the sale of assets and the transfer of risk (as a result of the sale of its businesses) substantially strengthening the group's BCAR.
These positive factors are partially offset by FMG's exposure to weather-related catastrophes, volatile underwriting performance and high expense ratio.
FMG's cost structure has been slightly higher than that of the market, partly as a function of its direct distribution model. As FMG covers approximately 3% of the New Zealand market, achieving greater economies of scale will increase the company's competitiveness going forward.
Increasing competition in rural insurance markets continues to exert pressure on FMG's profits. Further, similar to other insurance companies in New Zealand, the increase in premium rates has not kept pace with rebuilding costs, thus resulting in ever increasing loss ratios. Despite FMG's net assets being reasonably well protected by its reinsurance programs, it has experienced underwriting losses mainly due to weather-related events in the past two years.
Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers.
For more information, visit www.ambest.com.
A.M. Best Co. AnalystsPhilip Chung, CFA+852-2827-3409 philip.chung@ambest.comTerrence Wong, +852-2827-3403 terrence.wong@ambest.com or Public RelationsJim Peavy, +(1)
908-439-2200, ext. 5644 james.peavy@ambest.comRachelle Morrow,
+(1) 908-439-2200, ext. 5378 rachelle.morrow@ambest.com
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