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AM Best Upgrades Issuer Credit Ratings of Merchants Bonding Company (Mutual) and Merchants National Bonding, Inc.

AM Best has upgraded the Long-Term Issuer Credit Ratings (Long- Term ICRs) to “a+” (Excellent) from “a” (Excellent) and affirmed the Financial Strength Rating (FSR) of A (Excellent) of Merchants Bonding Company (Mutual) and its affiliate, Merchants National Bonding, Inc. Both companies are collectively known as Merchants Bonding Co (Mutual) Group (Merchants Bonding) and are domiciled in West Des Moines, IA. The outlook of the Long-Term ICRs has been revised to stable from positive, while the outlook of the FSR is stable.

The Credit Ratings (ratings) reflect Merchants Bonding’s balance sheet strength, which AM Best assesses as strongest, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management (ERM).

The upgrading of the Long-Term ICRs reflects Merchants Bonding’s long history of profitable operating performance, largely driven by strong underwriting results and growing investment earnings. The favorable underwriting results are primarily due to management’s strategic focus on profitability initiatives such as agency management and premium growth initiatives, which have resulted in larger contract bonds in the last five years, as well as utilizing tools to estimate loss ratios for products when determining new rates. However, the group’s underwriting performance is impacted by an elevated underwriting expense, reflecting the higher commissions that are strategically used to obtain risks that the group prefers to underwrite and to a lesser extent, investments in innovation and technological infrastructure. Merchants Bonding focuses on writing surety accounts with tangible net worth, and maintains adequate working capital with prompt pay records and has a history of profitability. AM Best expects the group’s prospective underwriting performance to remain profitable as volatility of key metrics is anticipated to remain low.

Merchants Bonding’s balance sheet strength assessment of strongest reflects its risk-adjusted capitalization at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). Additional factors are the group’s consistent surplus growth over the years, largely driven by profitable underwriting results and supplemented by consistent investment earnings, a high-quality, well-diversified investment portfolio weighted toward fixed-income securities and stable loss reserving trends as reflected by consistently favorable loss reserve developments over the long term, which are partially offset by slightly elevated equity leverage relative to composite norms. The surplus volume in 2022 was impacted by unrealized capital losses stemming from the volatility in the equity markets, but the group managed to report a modest increase in surplus largely driven by strong operating earnings. The favorable trend for surplus continued through first-quarter 2023 and is expected to continue for the remainder of the year.

Merchants Bonding’s neutral business profile is reflective of its geographic diversification with licenses in 50 states and the District of Colombia and product concentration with approximately 90% of premium writings concentrated in the surety line of business, partially offset by management’s expertise in the surety industry and strong agency relationships. In addition, the group ranks among the top national writers, according to The Surety & Fidelity Association of America. Furthermore, agency management and premium growth initiatives have resulted in larger contract bonds in recent years and products are distributed exclusively through a network of independent agents.

Merchants Bonding’s appropriate ERM is demonstrated through a formal risk management process, which provides assurances that its key compliance, financial, strategic and operational risks are addressed in meeting organizational objectives.

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.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit

Copyright © 2023 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.


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