Badger Mutual Insurance Company Downgraded by AM Best

AM Best has downgraded the Financial Strength Rating to C++ (Marginal) from B+ (Good) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “b+” (Marginal) from “bbb-” (Good) of Badger Mutual Insurance Company based in Milwaukee, Wi. The outlook of the FSR has been revised to stable from negative, while the outlook of the Long-Term ICR is negative.

The Credit Ratings (ratings) reflect Badger’s balance sheet strength, which AM Best assesses as weak, as well as its marginal operating performance, limited business profile and marginal enterprise risk management (ERM).

The rating downgrades reflect material erosion in Badger’s capital position, elevated leverage metrics and recent adverse loss development. The significant decline in surplus considerably reduced the company’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), from last year and AM Best expects the position to erode further in 2023. Collectively these factors weakened the overall balance sheet strength of Badger leading to the current assessment of weak.

Capital erosion is primarily attributed to outsized volatility in underwriting results in recent periods contributing to significantly negative operating earnings, which was materially impacted by weather-related losses and inflationary pressures. Management responded with rate increases, deductible changes, as well as strategic de-risking of the company’s portfolio to improve performance and reduce pressure on the balance sheet. While these efforts are expected to generate positive results in the medium term, the initiatives have yet to gain traction. Furthermore, the rating downgrades reflect Badger’s business profile’s susceptibility to weather losses, given the property component of the book.

The negative outlook on the Long-Term ICR reflects the negative trends in Badger’s capital position, which continues to challenge overall balance sheet strength. Elevated frequency and severity of net retained losses has the potential to strain prospective capital levels, as well as operating performance and subsequently risk-adjusted capitalization.

Source: AM Best

Topics Carriers AM Best