March 21, 2023

AM Best has downgraded the Financial Strength Rating to A- (Excellent) from A (Excellent) and the Long-Term Issuer Credit Rating to “a-” (Excellent) from “a” (Excellent) of RAM Mutual Insurance Company (RAM) (Esko, MN). The outlook of these Credit Ratings (ratings) is negative.

The ratings reflect RAM’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.

The rating downgrades reflect deterioration in RAM’s operating results and policyholder surplus, which have been impacted negatively by five catastrophic weather-related events, including the largest occurrence in RAM’s history, a Derecho storm that exhausted its per occurrence catastrophe limit. The company reported $32.5 million in underwriting losses and a combined ratio of 171.3% through Sept. 30, 2022.

A negative outlook was placed on RAM’s ratings on May 17, 2022, due to deterioration in its operating results. The recent significant weather events have caused further deterioration in several key operating metrics, aligning RAM more closely with adequately rated carriers. In addition, current year results will drive five-year average pre-tax and total returns on revenue and equity ratios to negative levels. In response, management has initiated several corrective measures to assess overall exposure and improve performance, including premium rate increases and agency management actions to control new business growth. The company has also contracted with a modeler to perform an aggregation study.

The negative rating outlooks reflect AM Best’s concern regarding the decline in overall balance sheet strength as RAM’s policyholder surplus has fallen 30% from year-end 2021. In addition, concern remains over the uncertainty and cost of purchasing coverage for 2023 as the program has not yet been finalized. The balance sheet strength assessment is supported currently by the strongest level of risk-adjusted capitalization, as measured by Best Capital Adequacy Ratio (BCAR). However, further pressuring the balance sheet strength is the RAM’s rising net and gross underwriting leverage results and increased reinsurance dependence, as measured by ceded leverage and net catastrophe retention.

The business profile assessment reflects RAM’s geographic concentration in the Minnesota, which increases susceptibility to severe weather-related events. RAM currently has an appropriate ERM assessment; however, depending on the successful implementation of the above initiatives, there may be pressure on this assessment.

Source: AM Best

AM Best

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