A.M. Best Revises Outlook to Negative for Madison Mutual Insurance Company

A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating of A- (Excellent) and issuer credit rating of "a-" of Madison Mutual Insurance Company (Madison Mutual) (Edwardsville, IL).

Madison Mutual's revised outlook reflects its poor underwriting performance in recent years, which has weakened its capitalization. The underwriting losses primarily stemmed from significant claims activity due to the company's concentration of business and limited product offerings. In addition, Madison Mutual maintains an elevated investment leverage, which exposes surplus to equity market volatility.

However, Madison Mutual sustains excellent risk-adjusted capitalization, which is derived from its conservative underwriting leverage. Furthermore, Madison Mutual maintains excellent liquidity measures, a favorable expense structure and a long-standing local market presence. The ratings also consider the company's recently implemented initiatives designed to improve underwriting performance.

Future rating downgrades could result if there is continued deterioration in Madison Mutual's underwriting performance or a significant erosion of its capital base. Removal of the negative outlook would result from, but would not be limited to, several years of improved underwriting performance in the company, while maintaining its excellent risk-adjusted capitalization.

The principal methodology used in determining these ratings is Best's Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best's rating process and highlights the different rating criteria employed. Additional key criteria utilized include: "Risk Management and the Rating Process for Insurance Companies"; "Understanding BCAR for Property/Casualty Insurers"; and "Catastrophe Analysis in A.M. Best Ratings." Methodologies can be found at www.ambest.com/ratings/methodology. Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com. Copyright © 2012 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.