OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of Mountain West Farm Bureau Mutual Insurance Company (Mountain West) (Laramie, WY).
The outlook revision to negative is the result of continued poor operating performance. Volatile underwriting results can be attributed primarily to frequent and severe catastrophe events, including multiple significant hail events in 2016. In the prior five years, surplus deterioration contributed to a decline in overall risk-adjusted capitalization. Additionally, Mountain West’s five-year return on revenue is negative and well below the private passenger standard auto and homeowners composites.
The focus of Mountain West is to service the members of the Farm Bureau Federation. Management’s initiatives to improve underwriting performance include increasing rates, reducing exposures and utilizing data analytics in the risk selection process; however, Mountain West’s underwriting performance has not yet been positively impacted by these initiatives. The company’s concentration in Montana and Wyoming exposes it to adverse regulatory or legislative changes in either state. Additionally, operating losses have resulted in steadily increasing underwriting leverage, which is now in line with that of the composite average.
These negative rating factors are offset by Mountain West’s favorable overall risk-adjusted capitalization, despite the recent decline, and consistently favorable reserve development. Strong investment income has partially offset the poor underwriting performance and aided liquidity measures that are above the composite. In addition, Mountain West maintains a strong market presence in its areas of operations, aided by its affiliation with the Farm Bureau Federations in its respective states.
Factors that could result in negative rating action include continuation of the unfavorable trend in operating performance or a material decline in risk-adjusted capitalization. Factors that could result in a stabilization of the current outlook include a sustained improvement in underwriting results.
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