OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has downgraded the Long-Term Issuer Credit Rating (Long-Term ICR) to “bbb” from “bbb+” and affirmed the Financial Strength Rating (FSR) of B++ (Good) of Mountain West Farm Bureau Mutual Insurance Company (Mountain West) (Laramie, WY). The outlook of the FSR has been revised to negative from stable while the outlook of the Long-Term ICR remains negative.
The Credit Ratings (ratings) reflect Mountain West’s balance sheet strength, which AM Best categorizes as strong, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management. The negative outlooks reflect the group’s unfavorable trends in balance sheet strength and enterprise risk management (ERM).
The downgrade of the Long-Term ICR reflects the revision of the balance sheet strength assessment to strong from very strong. The group experienced elevated weather losses in third-quarter 2019, specifically in August, which resulted in an underwriting loss in excess of $52 million and exhaustion of the group’s aggregate reinsurance treaty. As a result, the group purchased additional reinsurance coverage to shield the balance sheet from further deterioration. However, the elevated losses combined with the additional reinsurance expenses reduced surplus over 30%, and the group does not anticipate material improvement in fourth-quarter 2019. The reduction in surplus has resulted in deterioration in underwriting leverage ratios and risk-adjusted capitalization.
The continuation of the negative outlooks reflects the continued uncertainty regarding the group’s risk management capabilities and future balance sheet strength. The group is revising its reinsurance program in 2020 to better align with historical storm experience. However, some execution risk may exist regarding the details of the program structure relative to the risk profile. Additionally, the group’s continuation of underwriting volatility continues to stress the ERM assessment of appropriate, as a continuation of this trend brings into question the group’s ability to manage the risks inherent to its operations.
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