What AM Best Says
Mutual Strength

• Meg Green
• December 2020
• 

Homeowners insurance premiums for mutual property/casualty insurers in 2019 grew by $2.8 billion, which was 40% of their overall annual growth, said Chris Jackson, AM Best financial analyst.

AM Best-rated U.S. property/casualty and mutual insurance companies reported continued positive trends with their 2019 financial results despite challenges, including intense competition and operating pressures, according to a recent Best's Market Segment Report on mutual insurers, U.S. Mutuals' Strong Balance Sheets at the Fore Amid Pandemic.

Jackson spoke with ^AMBestTV about the report. Following is an edited transcript of the interview.

What advantages do mutual insurance companies offer during challenging times, like the current pandemic?

One of the most prominent ones would be that because the mutual insurance companies are focused on the policyholders—that is, their operating priority—they tend to be more reactive to developing situations in a way that is more favorable to the insured.

They are the ones, for example, that would be reaching out more, making more contact. They would have a better connection to the insured in the situation there.

Whereas, the stock companies, when a catastrophe happens, it's more of an attitude of: “How can we minimize the damage from this?” Not so much “How can we serve the people we are insuring to minimize their damage? This is an unexpected situation: How are we going to level out the damage this might do to our finances?”

Have you seen any impact on first-half results, from premium rebates and refunds?

Yes. Actually we've seen a lot of the impact on policyholder dividends that have increased substantially from the previous year, in 2019.

This year, we've seen about several billion dollars more paid by mutual insurance companies out of policyholder dividends than we saw in the first half of 2019, while, at the same time, the net written premiums were more or less the same.

What you see is an industry that is reacting in the way that it is built to serve its policyholders.When they have a sudden surplus of money that they got from the lower exposure of people going outside, or incurring losses, that kind of thing, their priority is to return that money to the customers.

They are then able to react much more quickly and much more personally to the people that are affected.

The report notes that rated mutuals grew premiums in 2019. What were the drivers of that growth?

The biggest driver, first of all, was the homeowners multiperil line. It, by itself, grew almost $3 billion over the previous year. The commercial lines also provided somewhat less of a boost, but they contributed as well.

Surplus for these companies also grew in 2019. What was behind that growth?

The biggest single contributor of the surplus growth difference in 2019 was the unrealized capital gains, which had been about $20 billion of growth in 2019. Whereas, the previous year, we had seen significant losses in the industry. The whole mutual segment, overall, lost about $14 billion in unrealized losses. Giving that back, in 2019, contributed significantly to the swing.