Setting the course for success
If you go by the numbers alone, 2024 was a good year for Grinnell Mutual and the company’s overall underwriting revenues rose, an indicator that the company is headed in a positive direction.
But while Grinnell Mutual has started to turn the ship around after some very rough weather, the company’s leaders know this course change required some difficult, at times painful, decisions. And they are under no illusion that it’s all smooth sailing ahead.
“Things went great for us in 2024,” said Grinnell Mutual President Dave Wingert. “But 2020 to 2023 — those were extremely challenging years, and not just for us. The downturn across the property-casualty industry was driven by a multitude of factors, and we had to take some aggressive actions to control our losses. It was these actions that were so impactful on our performance during the last year.”
How did we get here?
A glance at recent property-casualty history could lead to the conclusion that the hard times have been mostly due to a spike in the frequency of severe weather events. However, according to Adam Manus, president, chief brokerage officer, and director for Holborn, an independent reinsurance broker, “While the number of severe weather events we’ve experienced has been elevated, it is not unparalleled.” He pointed out that data collected over the last 20–30 years show there have been other periods with a similar number of severe storms.
“What’s been more unusual recently is the severity of loss the storms have caused. The average size of loss they’ve produced has been increasing year over year, at an unprecedented rate.”
Manus stressed that while the storms’ severity was in part responsible for the increased losses, it has been exacerbated by inflation.
“The cost of building materials and labor has just been going up and up,” Manus said. “Every time a storm has occurred, the cost of repair has just gotten higher. This is an industry-wide problem, and it has been compounding at an elevated rate for years and years.”
Manus also noted that in 2022, elevated interest rates and re-allocation of capital caused record losses to both stock and bond portfolios, with the knock-on effect of reducing the supply and increasing the cost of capital globally. “The reinsurance market was not immune,” Manus said. “And in January 2023, global reinsurers found that with less capital available, more premium was needed to protect against more net risk. The result was much higher reinsurance catastrophe retentions and reinsurance rates, which left the industry, including Grinnell Mutual, with more net retained risk that needed to be managed and funded.”
The higher interest rates mandated to get inflation under control in the larger economy also figure into the picture, as does the ongoing problem with litigation ending in outsized judgements against insurance companies.
Easing off the rocks
There were other factors that combined with these trends to make aggressive actions necessary. Development in especially loss-prone areas has continued mostly unchecked, bringing on a massive concentration of risk, prompting large insurers to curtail certain lines of business or to stop underwriting in high-risk areas like Florida or California entirely. Driven by these adverse conditions, a spate of mutual closures and mergers began, reducing coverage availability still further.
In the face of these challenges, Grinnell Mutual’s leadership took a hard-eyed look at what the company would need to do to keep the ship from foundering. One thing that was not on the table was exiting any of the states in which the company does business, a strategy used by several companies over the last few years. Other options were difficult, too, but offered a way to begin mitigating losses without abandoning ship.
“We had to do two main things to ease ourselves off the rocks,” said Grinnell Mutual CEO Jeff Menary. “First, we were required to make significant pricing increases for the reinsurance contracts we issued to the farm mutuals we reinsure and to the direct lines products we sell through independent agents. The areas where the most significant pricing increases were warranted were our property exposures.” The pricing changes were based upon historical losses and loss trends.
“Second, we tightened our new business and renewal underwriting practices, including addressing areas where we have highly concentrated property exposures,” Menary said. “Grinnell Mutual, along with the property and casualty industry in general, has tightened up the coverages provided for specific losses. This also applies to our reinsured mutuals’ reinsurance contracts and to our direct lines policies.”
Looking forward, not back
Given the roiled waters of the current marketplace, managing risk means managing expectations. Menary warned that while 2024’s improved numbers are encouraging, they’re not an indicator that we’re past troubled times or the need for caution.
“We’re pleased that our 2025 corporate property reinsurance placement improved,” he said. “But it’s not as strong as what we had in 2020.”
While it might be understandable to wish for a return to the days when catastrophic weather events were less catastrophic, investment capital was plentiful, and huge adverse court judgements were rare, it’s not reasonable to bank on that happening. “We anticipate modest improvements in the coming years,” Menary said. “But we can’t expect to return to the pricing and coverage levels we secured in 2020.”
Holborn’s Manus echoed Menary’s call for a cautious outlook, stressing that Grinnell Mutual’s 2024 numbers improved because the company’s leadership based its strategy changes on realistic expectations.
“After Jan. 1, 2023, Grinnell Mutual really made a very honest and thorough inventory of the issues facing the company,” Manus said. “In part, company leadership concluded that Grinnell Mutual’s catastrophe exposure was just too high for levels of premium, policyholders’ surplus, and reinsurance costs at the time.”
In alignment with the global reinsurance market’s view of risk, the company had to assume the most recent storm frequency and severity trends would continue and that inflation wasn’t going away anytime soon. The only way to protect surplus and return the company to profitability was to reduce exposures and increase premiums.
“Judging by 2024 results, Grinnell Mutual has been playing a different game relative to many of its competitors,” Manus said. “The company took seriously the price signal from the global reinsurance industry at the beginning of 2023 and took steps to protect its future.”
It always helps to be lucky, too. “Grinnell’s CAT activity was lighter in 2024 than what it has been of late and below expectation,” Manus said. “Some years are better, and we have obviously experienced a lot of years recently which have been much worse.”
No one believes that luck alone will see the ship through future storms, however. As Dave Wingert put it, “Just crossing your fingers and hoping you don’t have losses again like we had during the last five years is not a good strategy.”
Going forward, the mission as Grinnell Mutual’s leadership sees it is to stay ahead of the curve, continue to ensure adequate funding to support the company’s level of exposure, and not unduly put surplus at risk.
“Many of the adjustments we’ve made are going to stay in place, and I think they’re going to help us keep steering to where we need to go,” Wingert said.