A.M. Best Special Report: Mutual Insurance Companies at a Glance
CONTACTS:
Maurice Thomas Senior Financial Analyst (908) 439-2200, ext. 5016 maurice.thomas@ambest.com
Richard Attanasio Vice President (908) 439-2200, ext. 5432 richard.attanasio@ambest.com
Anthony Diodato Group Vice President (908) 439-2200, ext. 5704 anthony.diodato@ambest.com
Christopher Sharkey Manager, Public Relations (908) 439-2200, ext. 5159 christopher.sharkey@ambest.com
Jim Peavy Assistant Vice President, Public Relations (908) 439-2200, ext. 5644 james.peavy@ambest.com
FOR IMMEDIATE RELEASE
OLDWICK - SEPTEMBER 29, 2015 03:21 PM (EDT) A.M. Best has released as special report looking at some of the key performance metrics of U.S. mutual insurance companies. Mutual insurance companies stand apart on strategic scope when compared to stock companies, and the Best Special Report, titled, “Mutuals At a Glance,” highlights some of the differences between U.S. property/casualty (P/C) mutuals and the overall P/C sector.
Today, the differences between the mutual and stock insurance companies’ organizational structures are much less defined as compared with the earlier days when mutuals were first formed. Several mutuals have multi-state or national operations that in some cases perform in much the same way as their stock counterparts.
According to the report, while organizational structure does not always factor into consumer purchasing behavior, there are clear distinctions in terms of management’s focus. In the mutual company organization structure, policyholders maintain a defined set of rights and they also have ownership interests. Accordingly, the mission and performance expectations for a mutual can vary widely from those of its stock counterpart.
Some of the metrics the data for this report illustrates include:
Overall mutual companies report a solid level of capitalization, as measured by Best Capital Adequacy Ratio (BCAR). While results vary by company, over 75% of mutual companies rated by A.M. Best maintain BCAR scores in excess of 250;
While averaging about 10 points higher than the total P/C industry, mutual companies’ investment portfolios remain largely conservative with modest common stock holdings relative to surplus. More than half of rated mutual companies hold less than 25% of surplus common stock;
Reflective of the low interest rate environment and similar to the overall insurance industry, mutual companies struggle to find yield in their investment portfolios. The highest companies are earning just over 4%, while the lowest yielding companies are less than 1%;
A.M. Best-rated P/C mutuals have generally underperformed the overall P/C industry over the past five years on a loss ratio basis primarily due to exposure to weather driven losses;
Combined ratios, which varied significantly across rated mutual companies, generally underperformed the total P/C industry over the past five years. Nearly 75% of rated mutual reported combined ratios below 100%; and
While the population of rated mutuals is diverse, the top 10 writers make up approximately 70% of the total direct premiums written (DPW) for these companies, with the top two mutual companies, State Farm Group and Nationwide Group, having 40% and 13% of total DPW, respectively.
A.M. Best understands the mutual organization and is aware of the differences in the operating philosophies that drive the respective performance metrics. However, regardless of the structure, the business must have a clearly defined strategic position and solid enterprise risk management capabilities in order to be successful in today’s highly competitive environment.