OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has upgraded the financial strength rating (FSR) to B (Fair) from B- (Fair) and the issuer credit rating (ICR) to “bb” from “bb-” of Northwest G.F. Mutual Insurance Company (Northwest ) (Eureka, SD). The outlook for the FSR has been revised to stable from positive, while the outlook for the ICR remains positive.
The rating upgrades are a reflection of Northwest’s continued progress to strengthen risk-adjusted capitalization and operating performance. In previous years, results had deteriorated due to underpriced products and frequent and severe weather-related events. Following this decline, new management quickly took action by improving risk management, re-underwriting the book of business, tightening underwriting guidelines and taking significant rate increases. As a result of these overall efforts, Northwest reduced its policy count, expenses and investment risk. Over the past five years, the company saw significant reductions in surplus in the earliest two years; however, this was offset by three years of surplus gains, which continue through 2015. These results have been obtained despite the continued threat of frequent and severe weather typical of the company’s geographic concentration.
Partially offsetting these positive factors are the company’s overall negative pre-tax operating income and elevated expense ratios. The company has reported negative pre-tax operating income in three of the past five years. Net investment income has not been sufficient enough to offset underwriting losses. The geographic concentration in North Dakota and South Dakota places the company at risk for frequent and severe weather as evidenced in most years’ results.
Positive rating actions may continue if Northwest illustrates a sustained improvement in underwriting, operating results, and risk-adjusted capitalization. Negative rating actions may occur if there were further deterioration in underwriting, operating performance or risk-adjusted capitalization.
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