Best’s News & Research Service - April 02, 2015 09:51 AM (EDT)
A.M. Best Downgrades Ratings of Mountain West Farm Bureau Mutual Insurance Company
Oldwick //BestWire// - A.M. Best has downgraded the financial strength rating to A- (Excellent) from A (Excellent) and the issuer credit rating to "a-" from "a" of Mountain West Farm Bureau Mutual Insurance Company (Mountain West) (Laramie, WY). The outlook has been revised to stable from negative.
The downgrade reflects Mountain West's ongoing unfavorable operating performance, as reflected by its volatile operating and underwriting results in four of the last five years. As a result, five-year average pre-tax returns on revenue are negative and compare unfavorably with the private passenger standard auto and homeowners composites. In addition, Mountain West's overall risk-adjusted capitalization levels, as measured by Best's Capital Adequacy Ratio (BCAR), have fluctuated significantly over the past five years.
Its unfavorable underwriting and operating performance during the latest five-year period is attributed primarily to frequent and severe weather events. While these significant losses have mostly fallen below the company's catastrophe retention, Mountain West suffered the largest single loss event in the organization's history in May 2014, when a hailstorm in Billings, MT, resulted in nearly $70 million in gross losses and $17 million in net losses. Furthermore, Mountain West's business concentration in Wyoming and Montana exposes it to regulatory and legislative changes in each state.
The stable outlook reflects Mountain West's adequate risk-adjusted capitalization, which is supportive of its current rating level and is derived from its moderate underwriting leverage. Moreover, Mountain West has a stronger reinsurance program, retains excellent liquidity measures, maintains a favorable expense structure and has had a long-standing local market presence. The company also benefits from the sponsorship of the Wyoming and Montana Farm Bureau Federations, which facilitate marketing efforts and enhance customer loyalty and affinity. Additionally, management is undertaking initiatives to restore operational profitability, including rate increases where needed, reducing concentrated exposures and re-underwriting its book of business through data analytics, thereby leading to better risk selection.
Factors that could result in further negative rating actions include a continued deterioration in Mountain West's underwriting performance and/or a significant erosion of its capital base. Conversely, a sustained improvement in operating results, along with maintenance of favorable risk-adjusted capitalization, would allow Mountain West to maintain its current rating level and could lead to an upward revision in its rating outlook.
The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in
the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Key insurance criteria reports utilized include:
- Understanding BCAR for Property/Casualty Insurers
- Risk Management and the Rating Process for Insurance Companies
- Catastrophe Analysis in A.M. Best Ratings
- Rating Members of Insurance Groups
This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best's Ratings & Criteria Center.
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