AM 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-” (Excellent) of Badger Mutual Insurance Company (Badger) (Milwaukee, WI).
The Credit Ratings (ratings) reflect Badger’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The revision of the outlooks to negative from stable reflect pressure on Badger’s overall balance sheet strength due to material surplus erosion that has led to significant deterioration in the company’s risk-adjusted capitalization, as measured by Best Capital Adequacy Ratio (BCAR), as of third-quarter 2022. Badger’s recent surplus erosion has been driven mostly by significant weather losses due to increased catastrophe activity in the Midwest that occurred earlier in the year and to a lesser extent unrealized losses from the equity markets. Despite management’s underwriting initiatives, concerns have been raised regarding the appropriateness of the reinsurance program to manage risk effectively and protect the company’s balance sheet. Furthermore, while AM Best views Badger’s ERM program as appropriate, it will continue to monitor its effectiveness and ability to adapt considering the recent elevation in storm activity and the risk it bears.
Badger’s operating performance remains adequate, as measured by its five-year average combined ratio, which compares favorably with the composite, albeit the margin is small. Despite elevated catastrophe activity in 2022, prospective operating results are expected to improve based on several underwriting mitigation strategies and agency management efforts. The neutral business profile reflects Badger’s ability to sustain a profitable market share that benefits from its long-standing and well-established market presence operating as a regional multi-line property/casualty mutual insurance company. While Badger’s Midwest concentration exposes it to severe weather-related losses, this position is mitigated partially through an effective reinsurance program.
Source: AM Best
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