Press Release - AUGUST 01, 2019
AM Best Downgrades Credit Ratings of Madison Mutual Insurance Company
FOR IMMEDIATE RELEASE
OLDWICK - AUGUST 01, 2019
The ratings reflect Madison’s balance sheet strength, which AM Best categorizes as very strong, as well as its marginal operating performance, limited business profile and marginal enterprise risk management.
The downgrade of the ratings reflects a negative revision in Madison’s balance sheet strength assessment. This revision is mainly due to the company’s elevated common stock leverage and significant dependence on net investment income and realized capital gains for overall net income and policyholder surplus appreciation. Policyholder surplus has declined in three of the last five years, with the 2018 reduction a result of the fourth-quarter stock market decline. This result has reversed itself through June 30, 2019, and policyholder surplus is up 4.5% since year-end 2018; however, on a year-over-year basis, policyholder surplus remains essentially flat. Although improved in recent years, fluctuating reserve development also has dampened overall balance sheet strength. In addition, the company has reported negative operating cash flow for five consecutive years, mainly due to adverse underwriting results.
Operating performance improved in 2018 as corrective actions implemented by management in previous years gained traction. In 2018, the company reported improved loss ratios in most lines of business and lowered its expense level to the lowest in the last five years. However, through June 30, 2019, results have deteriorated due to increased weather-related events and lower earned premium. In addition, although Madison has achieved some recent improvements, the automobile insurance line of business continue to be problematic with increases in frequency and severity.
Based on the company’s geographic concentration of risk, limited scale of operations and inherent exposure to weather-related events, AM Best anticipates continued volatility in operating results. However, management’s corrective actions should lessen the amount of volatility.
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
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