AM Best lifts Merchants Bonding outlook to positive, affirms ratings

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Ashutosh Sureka

2 hours ago

AM Best lifts Merchants Bonding outlook to positive, affirms ratings — AM Best upgrades outlook

The ratings action highlights strengthening capital and underwriting performance at Merchants Bonding Co (Mutual) Group, a surety and fidelity insurer based in West Des Moines, Iowa. AM Best also keeps the group’s Financial Strength Rating at A and its Long-Term Issuer Credit Ratings at "a+" while pointing to surplus growth through April 2026.

Highlights

AM Best revised Merchants Bonding Company (Mutual) and Merchants National Bonding, Inc. outlooks to positive from stable while affirming current ratings.
Strongest-level risk-adjusted capitalization, driven by consistent surplus growth over the past five years through April 2026, underpins the outlook change.
Consistently profitable underwriting, a pure loss ratio below fidelity and surety averages, and advanced AI platforms contribute to strong liquidity and risk management.

Capital strength and ratings rationale

As reported by AM Best, the outlooks for Merchants Bonding Company (Mutual) and Merchants National Bonding, Inc. are revised to positive from stable, while their existing ratings are affirmed. The agency says the group’s balance sheet strength remains at the strongest level, supported by strong operating performance, a neutral business profile and appropriate enterprise risk management.

AM Best says the outlook change reflects the insurer’s strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio. That position is primarily driven by consistent surplus growth over the most recent five-year period and through April 2026.

The agency also points to a high-quality, well-diversified investment portfolio weighted toward fixed-income securities. That portfolio contributes about nine points and 12 points to the operating ratio on five-year and 10-year average bases, respectively.

Underwriting, liquidity and market profile

Merchants Bonding’s operating performance is supported by consistently profitable underwriting results with low volatility, according to the rating agency. AM Best adds that the group’s pure loss ratio is significantly below fidelity and surety composite averages, while favorable loss reserve development has generally continued on both accident-year and calendar-year bases in recent years.

Liquidity remains solid, backed by consistently positive underwriting and operating cash flows, and the group’s memberships in the Federal Home Loan Bank of Des Moines provide added financial flexibility. AM Best also says the business profile benefits from geographic diversification across all 50 states and the District of Columbia, with no single state accounting for more than 20% of premiums.

The agency further cites advances in technology, particularly the group’s enterprise artificial intelligence platforms, as well as selective underwriting and a strong reinsurance program. Those factors help protect surplus from potential losses and support the current enterprise risk management assessment.

Our earlier report on the final Fitch ratings for Polaris 2026-2 PLC outlined how the securitisation received grades across eight note classes backed by a UK owner-occupied and buy-to-let mortgage pool. We noted the mix of higher-complexity borrowers and weaker arrears performance versus prime lenders, alongside stress sensitivities showing potential multi-notch pressure on some tranches if foreclosures rise and recoveries fall.

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