The state of the US mutual insurance industry is strong, says latest market analysis from NAMIC

9 October 2020


The United States mutual insurance industry remains financially strong despite the tumultuous first half of 2020 and well positioned for the future, according to the third annual market performance analysis released in September by ICMIF member the National Association of Mutual Insurance Companies (NAMIC, USA) and Aon, a global professional services firm providing a broad range of risk, retirement, and health solutions.

The latest report, Mutual Factor 2020: How Performance, Structure, and Focus Set Mutual Insurance Companies Apart, evaluated nearly 30 performance metrics for mutual insurance companies in the United States in 2019 compared to other insurer categories and assessed the impact of ratings agency criteria on mutuals. In recognition of the unparalleled circumstances facing the US insurance industry as the result of the COVID-19 pandemic, the new Mutual Factor report also analysed performance metrics for the first two quarters of 2020 and looked at how thought leaders perceive the mutual industry.

Neil Alldredge, NAMIC’s senior vice president of corporate affairs, noted the inclusion of current-year data is a departure from past reports, but one that was critical to understanding the value of the underlying mutual structure and focus of the mutual insurance segment in the US.

“While the 2019 data is important to keep the comparison to previous years, we knew the picture would not be complete without factoring in the impact of the coronavirus on the industry,” Alldredge said. “What we found is that despite the many challenges – from a new remote working environment, to regulatory and legislative efforts and a changing marketplace – the mutual industry has held up well. The same focus on financial strength, alignment with policyholders, and support for their communities that have guided mutuals for decades or even centuries has continued to help them through these latest crises.”

The study includes a comprehensive analysis of the performance of more than 600 insurers under ICMIF Supporting Member AM Best’s Credit Rating Methodology framework.

Chris Delhey, senior managing director and leader of Aon’s Mutual Practice Group said: “Aon is very pleased to once again work with NAMIC on the development of this important report. The mutual insurance industry entered this year of uncertainty in a position of solidity and strength, which has allowed mutual carriers to provide the unique sort of support their policyholders have come to appreciate. Maybe even more impressive is the emergence of the mutual marketplace from these challenges in an even stronger position.”

Among the key findings from the 2020 Mutual Factor report:

  • In response to the challenges faced by policyholders during COVID-19, the report estimated that the industry returned nearly USD 9 billion in premiums in Q2 2020, with mutual insurers returning USD 4.5 billion mainly through policyholder dividends, while stocks returned USD 4.3 billion primarily through premium credits.
  • In Q2 2020, the policyholder dividend ratio for mutual insurers was 5.8 percent compared to 1.1 percent in Q1 2020, while the policyholder dividend ratio for stock insurers remained below 1.0 percent for both quarters.
  • Mutual insurers ran at an underwriting loss as a result of their increased policyholder dividend ratio. The combined ratio for mutual insurers for Q2 2020 was 102.7 percent compared to 98.8 percent for stock companies, which operated at an underwriting profit, aligning with their focus on returns.
  • The pace of increase in capital and surplus was nearly four times that of premium growth in 2019, therefore reducing leverage industrywide and increasing the amount of capital standing behind each dollar of premium written. Mutual insurers were slightly more leveraged than their stock counterparts in 2019, with USD 1.33 in policyholder surplus backing up each dollar in net premiums written compared to USD 1.35 for stock insurers.
  • Mutual companies are well capitalized with the median Best’s Capital Adequacy Ratio at the VaR 99.6 of 59 percent, 10 points higher than stock companies at 49 percent. Ninety percent of mutual companies also have the “Strongest” or “Very Strong” balance sheet strength rating, compared to 79 percent for stock companies.

The Mutual Factor report also surveyed 22 industry executives across the country from mutual insurance companies reflecting different sizes and lines of business to gain perspective on what challenges the industry currently faces and will face in the future. Specific highlights include:

  • In terms of the workplace, most executives do not expect to see their offices at full capacity due to the pandemic and felt that the transition to remote work went smoothly.
  • Many executives agreed that the pandemic served as a catalyst and accelerated the pace of technological change. As a result, many predict that digitization and advanced technology may lead to consolidations of smaller companies.
  • The executives highlighted the benefits of being a mutual insurer and the commitment mutual insurers place on impacting their communities and to diversity.

For member-only strategic content on the cooperative/mutual insurance sector, ICMIF members have exclusive access to a range of online resources through the ICMIF Knowledge Hub.

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