A.M. Best Reports focus on mutuals

Wednesday, 19 September 2012

Supporting Member, A.M. Best, has recently shared with ICMIF a special report and one of their articles both of which focus on the mutual insurance sector.

The report, Addressing Structural Differences In the Rating Process, examines the mutual insurance sector’s performance in the United States market. Though the report is only based on United States mutuals it will be of interest to the mutual sector in other parts of the world also. The report uses US data for the analysis and has some interesting issues that any mutual or cooperative organisation will be interested in looking closely at.

The report states that the organizational structure of an insurance company has a profound impact on its profitability requirements, management philosophy, client base, investment options and financial flexibility. A.M. Best’s Financial Strength Ratings incorporate these distinctions on both a quantitative and qualitative basis when evaluating the financial strength of insurers, but the overall ratings criteria remains the same regardless of organizational structure.

A.M. Best understands the mutual organization and is aware that different operating philosophies will yield different performance. The report looks at the characteristics of mutual companies versus stock companies, looking at the geographic concentration, number of companies and their share of the market, comparative performance statistics and business focus.

The recent article shared with ICMIF, Mutually Exclusive, was published in August 2012 edition of the Best’s Review magazine, and demonstrates how mutual life insurance companies have performed extremely well despite the overall poor performance of the US economy in recent years.

In the article Senior Associate Editor Ron Panko highlights how the current trend is for mutual life insurance companies to continue to grow robustly despite the poor economy. He also points out that the reason for his trend is that consumers are attracted by mutuals’ financial strength and their business model which focuses on policyholders. Mutuals are generally better capitalized than their publicly traded competitors. Since they do not have stockholders, mutuals can focus on providing value to policyholders.

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