A.M. Best Co. has downgraded the financial strength rating to A (Excellent) from A+ (Superior) and issuer credit rating to “a” from “aa-” of Mountain West Farm Bureau Mutual Insurance Company (Mountain West) (Laramie, WY). The outlook for both ratings has been revised to stable from negative.
The rating downgrades reflect Mountain West’s poor underwriting performance in recent years and significant surplus decline, which are not reflective of its prior rating level. Mountain West’s poor underwriting performance is attributed to frequent and severe weather events in 2010, which were below the company’s catastrophe retention. In addition, despite improvement from 2010, the company’s underwriting losses remained elevated in 2011. Furthermore, Mountain West’s business concentration in Wyoming and Montana exposes it to changes in the regulatory and legislative environment.
However, Mountain West sustains a strong risk-adjusted capitalization, which is derived from its conservative underwriting leverage. Moreover, Mountain West has strengthened its reinsurance program, retains excellent liquidity measures, has a favorable expense structure and a long-standing local market presence and benefits from the sponsorship of the Wyoming and Montana Farm Bureau Federations, which facilitate marketing and government relations efforts, as well as enhances customer loyalty and affinity.
Factors that could result in future negative rating actions include a continued deterioration in Mountain West’s underwriting performance or a significant erosion of its capital base.
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. Key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Property/Casualty Insurers”; “Rating Members of Insurance Groups”; and “Catastrophe Analysis in A.M. Best Ratings.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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