AM Best Revises Outlooks to Negative for Co-operative Insurance Companies

AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” (Excellent) of Co-operative Insurance Companies (Co-operative) (Middlebury, VT).

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

The revised outlooks to negative are based on the deterioration in Co-operative’s underwriting and operating performance in recent years, driven primarily by the personal auto liability and physical damage lines of business from rising loss costs due to inflationary trends. Additionally, the homeowners and commercial multi-peril lines of business were impacted by fire and weather-related losses, which also were exacerbated by inflationary loss cost trends. Consequently, Co-operative’s five-year average combined ratio and operating ratio are now moderately higher than its industry composite average and have deviated materially in 2024 from the median of adequately assessed rating units within its composite.

Furthermore, Co-operative has reported underwriting and pre-tax operating losses in four of the past five years; however, net losses have only been reported in the most recent year of the past five due to substantial realized gains on its equity portfolio over the period. Co-operative’s five-year average loss and loss adjustment expense ratio has compared favorably with its composite average, which has been more than offset by an elevated five-year average underwriting expense ratio, which is reflective of higher commission rates typical of New England writers.

Co-operative has implemented significant rate increases for all major lines of business in recent years, with additional rate adjustments planned for 2025, in conjunction with underwriting, pricing and claims strategic initiatives. However, failure to execute its strategic plans successfully would likely result in negative rating action.

Co-operative’s balance sheet strength assessment of very strong is driven by its strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), low underwriting leverage, strong liquidity ratios and favorable loss reserve development in nearly all calendar and accident years. AM Best assesses Co-operative’s business profile as neutral as its geographic concentration in Vermont and New Hampshire is offset partially by its position as a market leader in Vermont for farmowners and residential property. Furthermore, the company has product diversification between its homeowners, commercial multi-peril, personal auto and farmowners lines of business. While recent challenges are considered more of an operating performance issue at this time, continuation over the intermediate term could begin to challenge the neutral business profile assessment. AM Best assesses Co-operative’s ERM as appropriate for its risk profile as its formal ERM plan includes written objectives, processes, a framework, roles and responsibilities, risk tolerances and identified risks with mitigation strategies. The executive team, management team audit committee, board of directors and chief risk officer are all engaged in the ERM process and are responsible for its oversight and development.

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 www.ambest.com.

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