OLDWICK, N.J.–(BUSINESS WIRE)–AM Best has affirmed the Financial Strength Rating (FSR) of A- (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a-” of The Farmers Automobile Insurance Association and its wholly owned subsidiary, Pekin Insurance Company (together known as Pekin). AM Best also has affirmed the FSR of A- (Excellent) and the Long-Term ICR of “a-” of Pekin Life Insurance Company (Pekin Life). The outlook of these Credit ratings (ratings) is stable. All companies are domiciled in Pekin, IL.
Pekin Life is a publicly traded, over-the-counter company, although the majority of its shares are owned by The Farmers Automobile Insurance Association.
The ratings of Pekin reflect its balance sheet strength, which AM Best categorizes as very strong, as well as its marginal operating performance, neutral business profile and appropriate enterprise risk management (ERM).
Pekin’s balance sheet strength is supported by the strongest level of risk-adjusted capitalization, a high quality investment portfolio with adequate liquidity and historically favorable loss reserve development trends. The marginal operating performance reflects Pekin’s below average underwriting performance primarily driven by increased catastrophe losses in recent years and a comparatively high expense structure. Management has continued to institute several profitability initiatives, including expanded use of predictive modeling within nearly all major product lines, pricing changes and significant technology upgrades, which included a new policy administration system. The neutral business profile reflects a broad range of personal and commercial products that Pekin offers in several Midwestern states. AM Best considers the ERM program to be appropriate with qualitative and quantitative risk appetite and tolerance statements for key risks that are closely tied to the organization’s strategic planning process. Pekin’s catastrophe exposure is managed through a comprehensive reinsurance program with highly rated reinsurers to limit the impact of severe weather-related events.
The stable outlook is based on AM Best’s expectation of reduced volatility in operating performance that should benefit from ongoing underwriting initiatives while maintaining balance sheet strength at the very strong level.
The ratings of Pekin Life reflect its balance sheet strength, which AM Best categorizes as very strong, as well as its marginal operating performance, neutral business profile and appropriate ERM. The ratings of Pekin Life also reflect its strategic role within the organization, as well as its diversified product offerings and high quality investment portfolio. Partially offsetting these rating factors are the company’s fluctuating operating results and its geographic concentration risk. The main operating pressures experienced by Pekin Life are its lack of scale to support the diverse product line and its relatively high operating expenses; however, management expects to see more premium growth in the coming years as the company’s core product sales are projected to increase. Pekin Life’s ERM program is structured within the framework of Pekin’s overall organization.
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Michael T. Venezia
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