Best Downgrades Rating of Wisconsin Municipal Insurer

Why It Matters

The downgrade signals heightened risk for municipal bond investors and may increase borrowing costs for Wisconsin local governments relying on the insurer’s capacity.

Key Takeaways

• A.M. Best cut rating to B++ from A-
• Long‑term issuer credit downgraded to BBB+ from A-
• Five consecutive underwriting losses, biggest in 2025
• Policyholder dividend structure hampers surplus growth
• Management’s turnaround plan remains uncertain

Pulse Analysis

Municipal insurers play a critical role in protecting local government assets, and their credit ratings are a key barometer for investors and policymakers. A.M. Best, one of the most respected rating agencies in the property‑casualty space, recently lowered Cities and Villages Mutual Insurance’s financial strength rating to B++ and its long‑term issuer credit rating to BBB+. While the financial‑strength outlook moved to stable, the credit outlook stayed negative, underscoring lingering concerns about the company’s ability to meet policyholder obligations. Such rating adjustments reverberate through the municipal bond market, where insurers often serve as guarantors for debt issuances.

The downgrade reflects a pattern of deteriorating underwriting performance. Cities and Villages reported net underwriting losses for five straight years, with the steepest decline recorded in 2025. A policyholder dividend structure, designed to return surplus to members, has constrained capital accumulation, limiting the insurer’s risk‑adjusted capitalization. Moreover, the carrier’s business is heavily concentrated in Wisconsin municipalities, exposing it to regional economic swings and a surge in large auto physical‑damage and liability claims. These factors combine to erode profitability and heighten volatility in the insurer’s loss ratios.

For municipalities, the rating downgrade could translate into higher insurance premiums and tighter underwriting terms, potentially raising the cost of public projects financed through bonds. Investors holding municipal securities backed by Cities and Villages may reassess credit risk, prompting price adjustments or demand for additional collateral. Management’s strategic initiatives—such as revisiting dividend policies and diversifying the risk pool—remain unproven, leaving stakeholders to monitor capital‑raising efforts closely. The episode also serves as a cautionary tale for other regional insurers about the trade‑off between member dividends and long‑term solvency.