AM Best has downgraded the Financial Strength Rating (FSR) to B++ (Good) from A- (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “bbb+” (Good) from “a-” (Excellent) of Farmers Insurance Company of Flemington (Farmers) (Flemington, NJ). The outlook of the FSR has been revised to stable from negative while the outlook of the Long-Term ICR is negative.

The ratings reflect Farmers’ balance sheet strength, which AM Best assesses as very strong, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management (ERM).

The rating downgrades reflect a revision in Farmers operating performance assessment to marginal from adequate. Underwriting results have experienced meaningful volatility in recent years due to frequent and severe weather events, inflationary pressures and rapidly rising reinsurance costs. Concurrently, rate increases, form updates and other profitability initiatives have taken time to implement, with prolonged regulatory review timeframes causing further delays. As a result, operating performance metrics have weakened and are now more closely aligned with a marginal assessment.

Farmers’ balance sheet strength assessment is very strong, supported by risk-adjusted capitalization at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), favorable underwriting leverage ratios, robust liquidity and a comprehensive reinsurance program. The negative outlook on the Long-Term ICR reflects pressure on the balance sheet strength assessment stemming from a continued decline in policyholder surplus since 2022, which has weakened key balance sheet strength metrics. While management has taken various corrective actions and re-underwriting initiatives, which could ultimately stabilize policyholder surplus, the ultimate effectiveness and timing of these actions remain uncertain.

The limited business profile reflects Farmers’ geographic concentration as a smaller, single-state writer in New Jersey, which exposes the company to localized weather conditions, as well as significant regulatory challenges and legislative pressures.

AM Best assesses Farmers’ ERM as appropriate for its size and scale of operations and reflects a stronger, formalized risk management culture that has been incorporated in recent years.

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