Vermont Mutual Insurance Group, the regional insurer with a history dating back to 1828, has recently “weathered” a series of challenges prompting AM Best, on April 2, 2024, to revise its outlook to negative from stable. Citing concerns about the Group’s declining risk-adjusted capitalization and volatility in operating performance, the rating agency was ultimately influenced by the significant property exposure within the Group’s operating territory.
Reasons Behind AM Best’s Negative Outlook
According to AM Best, Vermont Mutual’s risk-adjusted capitalization has been under pressure in recent years, partially due to increased modeled losses stemming from inflationary trends and the company’s efforts to enhance insurance-to-value. Additionally, the group’s capital growth has been subdued by fluctuations in operating performance, deviating from its historically favorable results.
Challenges Faced in 2023
In their introductory letter to Vermont Mutual’s 2023 annual statement, Daniel C. Bridge, Chairman, President, and CEO, and Mark J. McDonnell, Executive Vice President & COO, described the past few years as “amongst the most challenging for the insurance industry and for Vermont Mutual.” He referred to a “perfect storm” of disruptors, including supply chain delays, historic inflation, climate change, and expensive reinsurance. The company experienced two of the most costly weather events in its 195-year history, with losses from a February freeze and a December windstorm totaling nearly $70 million and adding 12 points to its combined ratio in 2023.
A+ Rating Unchanged Based on Positive Factors Recognized by AM Best
Despite these challenges, AM Best affirmed Vermont Mutual’s Financial Strength Rating of A+ (Superior) and Long-Term Issuer Credit Ratings of “aa-” (Superior), recognizing the group’s very strong balance sheet strength, strong operating performance based on 5- and 10-year metrics, favorable business profile, and appropriate enterprise risk management. The rating agency also noted that Vermont Mutual’s comprehensive reinsurance program provides substantial protection from severe events without excessive dependence.
Progress Towards Recovery
Throughout 2023, Vermont Mutual made significant progress towards recovery, growing premium by 13.6% and policyholder surplus by 2.5%, even as it continued to support policyholders and maintain its record of charitable giving. The company has also implemented improvements to its systems and infrastructure and is currently renovating its headquarters, which was affected by historic flooding in Vermont.
Looking to the Future
Looking ahead, AM Best expects Vermont Mutual’s near-term capital management plans to materially improve its capital position. The company remains committed to returning profitability to its “historic industry-leading level” through data-driven initiatives, cost management, operational improvements, and the exploration of new capabilities.
About Vermont Mutual
Vermont Mutual Insurance Group, founded in 1828, offers personal and commercial insurance products in Connecticut, Maine, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont. The group comprises Vermont Mutual Insurance Company, its fully reinsured subsidiary, Northern Security Insurance Company, Inc., and its affiliate, Granite Security Insurance Company. Represented by more than 800 independent agencies, Vermont Mutual insures over 300,000 policyholders.
About AM Best
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 operates in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.
