AM Best has downgraded the Financial Strength Rating to B++ (Good) from A- (Excellent) and the Long-Term Issuer Credit Rating to “bbb+” (Good) from “a-” (Excellent) of RAM Mutual Insurance Company (RAM) (Esko, MN). Concurrently, AM Best has placed these Credit Ratings (ratings) under review with negative implications.

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

The rating downgrades reflect deterioration in RAM’s operating results and subsequent policyholder surplus loss through Sept. 30, 2023, which has been impacted negatively by frequent weather-related events, increased loss costs caused by inflation, increased retentions and adverse loss development from accident year 2022. These factors have severely impacted RAM’s direct book of business. The company has reported sizable underwriting and pre-tax operating losses for two years. Currently, five-year average (2017-2022) pre-tax and total returns on revenue and equity are negative and are projected to worsen with the inclusion of year-end 2023 results. As a result, RAM’s overall operating performance assessment was downgraded to marginal from adequate as these results are no longer closely aligned with other adequately assessed companies.

RAM’s ratings being placed under review with negative implications reflects the uncertainty, timing and execution risks of capital infusions from the issuance of Guarantee Certificates to township mutual members to try and stabilize policyholder surplus and overall risk-adjusted capitalization. RAM’s Board of Directors and management have initiated a capital program of raising capital through Guaranteed Certificate Funds through their township mutuals to help strengthen their balance sheet metrics. The program was approved by the Minnesota Department of Commerce in September. Additionally, management has initiated several underwriting coverage changes, premium rate increases and agency management actions to limit new business growth, as well as to improve overall operating performance in 2024.

Furthermore, AM Best remains concerned regarding the uncertainty and cost of RAM’s 2024 reinsurance program and its potential impact on balance sheet metrics; to date the program has not been finalized. Also, further pressuring the balance sheet strength is RAM’s elevated net and gross underwriting leverage metrics, and increased reinsurance dependence, as measured by ceded leverage and increased net catastrophe retention. The business profile assessment reflects RAM’s geographic concentration in Minnesota, which creates increased susceptibility to frequent and 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. The ratings will remain under review until AM Best can fully analyze the impact of these initiatives on the balance sheet metrics.

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 Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

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