January 24, 2013 / 10:27 PM / in 5 years

TEXT - Fitch affirms The Farmers Insurance Exchange

(The following statement was released by the rating agency)
    Jan 24 - Fitch Ratings has affirmed the 'A+' Insurer Financial Strength
(IFS) rating of The Farmers Insurance Exchange (Farmers) and its affiliated
Property & Casualty Insurers. The Rating Outlook is Stable.

A full rating list of rating actions appears at the end of this press release.

The ratings for Farmers reflect Fitch's view of Farmers' strategic importance as
'Very Important' to the Zurich Insurance Group (ZIG) in accordance with Fitch's 
insurance group rating criteria. Based strictly on Farmers' own financial 
profile, Fitch believes the stand-alone IFS rating of the company is 'A-'. 
Farmers' strategic importance is an important consideration toward providing 
Farmers' ratings with a two-notch uplift towards ZIG's insurance subsidiaries' 

Farmers operates as a reciprocal exchange which is ultimately owned by its 
policyholders. A separate organization called Farmers Group, Inc. (FGI), a 
wholly owned subsidiary of ZIG serves as the attorney-in-fact for Farmers and 
collects a management fee for non-claims related management services of up to 
20% of Farmers' annual gross written premium. ZIG, which is FGI's ultimate 
parent, recorded $2.1 billion in management fees from Farmers through the first 
nine months of 2012.

Farmers ratings reflect the support and financial flexibility provided by the 
larger ZIG organization, which is manifested by the management agreement between
FGI and the policyholders of Farmers, as well as by the numerous, sizable 
investments made by ZIG subsidiaries in surplus notes issued by Farmers, and by 
the existence of an all lines quota share reinsurance agreement through which 
The Farmers Exchanges ceded 20% of the company's business to ZIG in 2012.

The stand-alone rating of Farmers reflects the company's strong competitive 
position as one of the largest personal lines insurers in the U.S., a track 
record of stable operating results, and the company's high-quality investment 
portfolio that is dominated by highly rated fixed income securities.

These positive factors are partially offset by relatively high statutory 
operating leverage, geographic concentration, and Fitch's belief that Farmers' 
underwriting results, which have averaged near break-even over the past five 
years, compare unfavorably to several of the company's closest peers over the 
same time period.

Fitch believes that ZIG will maintain its ownership in FGI and remain committed 
to accessing the North American personal lines insurance market through Farmers.
In evaluating this commitment, Fitch will place particular emphasis on FGI's 
earnings contribution to ZIG, as well as other factors including ZIG's 
willingness and ability to provide reinsurance and capital support to Farmers if

Key rating triggers that could lead to a ratings downgrade include a downgrade 
of ZIG's ratings or an indication of weakening in ZIG's willingness or ability 
to continue its investment and reinsurance relationship with Farmers. Moreover, 
if Farmers' stand-alone credit profile were to worsen then Fitch could downgrade
the Farmers' ratings.  Such deterioration could be evidenced by declining 
underwriting results or overall profitability, or if net written 
premium-to-surplus and net leverage, were to exceed 3.0x and 6.5x, respectively,
versus average levels of roughly 2.5x and 5.5x, respectively, observed over the 
past several years.

Key rating triggers that could lead to a ratings upgrade center around an 
improvement in Farmers' stand-alone credit profile including improved operating 
performance, and improved capitalization metrics such as a reduction in 
operating leverage (net written premium-to-surplus) and net leverage ratio to 
below 2.0x and 4.0x, respectively.

Fitch affirms the following ratings with a Stable Rating Outlook:

Farmers Insurance Exchange
Truck Insurance Exchange Truck Underwriters Association
Fire Insurance Exchange Fire Underwriters Association
Mid-Century Insurance Company
Farmers Insurance Company of Arizona
Farmers Insurance Company of Idaho
Farmers Insurance Company, Inc.
Farmers Insurance Company of Oregon
Farmers Insurance Company of Washington
Farmers Insurance Hawaii, Inc.
Illinois Farmers Insurance Company
Texas Farmers Insurance Company
Farmers Insurance of Columbus, Inc.
Farmers Texas County Mutual Insurance Company 
Mid-Century Insurance Company of Texas
Civic Property and Casualty Company
Exact Property and Casualty Company
Neighborhood Spirit Property and Casualty Company
Farmers New Century Insurance Company
Farmers Reinsurance Company
Foremost Insurance Company Grand Rapids, Michigan
Foremost Signature Insurance Company
American Federation Insurance Company
Foremost Property and Casualty Insurance Company
Foremost County Mutual Insurance Company
Foremost Lloyds of Texas
Bristol West Casualty Insurance Company
Bristol West Insurance Company
Bristol West Preferred Insurance Company
Coast National Insurance Company
Security National Insurance Company
21st Century Assurance Company
21st Century North American Insurance Company
21st Century Superior Insurance Company 
21st Century Pinnacle Insurance Company
21st Century Pacific Insurance Company
21st Century Auto Insurance Company of New Jersey
21st Century Centennial Insurance Company
American Pacific Insurance Company, Inc.
21st Century Advantage Insurance Company
21st Century Indemnity Insurance Company
21st Century National Insurance Company, Inc.
21st Century Preferred Insurance Company
21st Century Premier Insurance Company
21st Century Security Insurance Company
21st Century Casualty Company
21st Century Insurance Company
21st Century Insurance Company of the Southwest

 (Caryn Trokie, New York Ratings Unit)
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