AM Best has revised the outlook to negative from stable for the Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the Financial Strength Rating (FSR) of B++ (Good) and the Long-Term ICR of “bbb+” (Good) of Gar-Bo Försäkring AB (Gar-Bo) (Sweden). The outlook of the FSR is stable. Concurrently, AM Best has withdrawn these Credit Ratings (ratings) as the company has requested to no longer participate in AM Best’s interactive rating process.

The ratings reflect Gar-Bo’s balance sheet strength, which AM Best assesses as strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management.

The revision of the Long-Term ICR outlook to negative from stable reflects AM Best’s concern that the company will not be able to reverse the negative trend in its operating performance over the near-term. Gar-Bo’s performance deteriorated in 2023 and is expected to further weaken in 2024 as a result of difficulties that the Nordic housing market segment has experienced, stemming from rising inflation and high interest rates, which increased the risk of bankruptcies. Additionally, the company’s risk-adjusted capitalization could deteriorate if not supported by good internal capital generation.

The balance sheet strength assessment is underpinned by Gar-Bo’s risk-adjusted capitalisation, which AM Best assessed as very strong at year-end 2023, as measured by Best’s Capital Adequacy Ratio (BCAR). Additional factors include the company’s good liquidity profile and prudent reserving practices. A partly offsetting factor is the company’s moderate reinsurance dependence, although the associated risk is mitigated by the use of a well-diversified panel of reinsurance counterparties of good credit quality. Additionally, the company’s relatively high allocations to equities and unrated bonds exposes it to elevated investment risk, which increases the potential for volatility in its risk-adjusted capitalisation.

Gar-Bo’s strong operating performance assessment is underpinned by a five-year (2019-2023) weighted average return-on-equity of 16.8% and combined ratio of 91.9% (year-end 2023: 105.2%), as calculated by AM Best. However, in the first six months of 2024, the company reported a number of large claims on the completion and latent defect businesses. Although these claims could develop positively in the next months, full-year 2024 operating performance is expected to be weaker than Gar-Bo’s historical track record, and below AM Best’s benchmark for the strong assessment level for a second straight year.

Gar-Bo is a niche insurer in the Nordic market that underwrites construction-related, long-duration surety products, primarily in Sweden, with expansion efforts in Denmark and Norway. In AM Best’s view, the specialist construction services that the company provides, largely to mid-market construction and building clients, affords a competitive advantage in Gar-Bo’s domestic market. Partly offsetting factors include a heightened regulatory risk due to the company’s product offerings and its geographic concentration in Sweden.

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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