By Michael Loney

March 5 - (The Insurer) - AM Best has downgraded the financial strength rating to A (Excellent) from A+ (Superior) of Vermont Mutual Insurance Company and its fully reinsured subsidiaries following a strategic shift in the insurer’s management of risk-adjusted capitalisation.

The long-term issuer credit ratings were also downgraded to a+” (Excellent) from “aa-” (Superior).

The outlook for all ratings, which apply to Vermont Mutual and subsidiaries Northern Security Insurance Company and Granite Security Insurance Company, has been revised to stable from negative.

“The downgrading of the ratings is based on a strategic shift in Vermont Mutual’s management of its risk-adjusted capitalization. With it resolved, AM Best has determined that the risk-adjusted capitalization has settled into the strong position as opposed to very strong as measured by Best’s Capital Adequacy Ratio,” the rating agency said.

Management elected to shift its target level of risk-adjusted capitalisation to a level commensurate of a balance sheet strength assessment of “strong” considering potential volatility in tail periods and restrictive reinsurance pricing.

AM Best said that Vermont Mutual reported a return to strong operating performance in 2024, following deterioration in its underwriting results in 2022 and 2023, due to rising inflationary trends and increased freeze losses caused by a historic Polar Vortex that affected the Northeast in 2023.

“Strong underwriting results and growing investment income in 2024, coupled with capital gains from favorable equity market conditions, resulted in record net earnings and surplus growth for the year,” it said.

AM Best noted Vermont Mutual’s geographic and product concentrations, but also highlighted its results have benefited from effective risk selection and pricing strategies.

Vermont Mutual in 2023 reported direct premium of $720 million, up from $635 million in 2022. Its combined ratio deteriorated 12 points in 2023 to 106.8%. It has not released its 2024 annual report yet.

In December 2024, Vermont Mutual president Mark McDonnell took over as CEO from Daniel Bridge.