Mutual Insurers Positioned for Growth But Some May Need Partners

The world’s mutual insurance companies are well placed to continue to grow market share in the wake of the credit crisis, but they also face a vast range of challenges, according to new research.

A report by credit ratings agency A.M. Best Co. shows that mutuals currently make up 26.5 percent of the world’s insurance premiums, compared to 25.2 percent a year earlier. They could increase their presence further, the study suggests, because they are perceived to be relatively safe, can offer more competitive prices to well-defined affinity groups, and do not face the same pressures in terms of returns to shareholders that stock companies face.

The research report, “Mutuals under the microscope as market share grows,” was launched by A.M. Best at the International Cooperative and Mutual Insurance Federation (ICMIF) Biennial Conference in Toronto.

Speaking at the conference, Nick Charteris-Black, director of Global Financial Services at A.M. Best, placed the future for mutuals in context.

“Mutuals are being presented with opportunities to exploit their values and build on customer loyalty during the continued economic uncertainty,” he said. “However, they do also face a host of challenges and lack the financial flexibility of stock companies. For some mutuals, the future is uncertain.”

The report also predicts that some mutuals will be forced to merge and create partnerships in order to survive aggressive competition and regulatory pressures.

Yvette Essen, report author and Head of Market Analysis, Global Financial Services at A.M. Best, said, “These challenges are expected to drive consolidation and partnerships around the world, particularly among smaller mutuals looking to share central resources. While the bigger mutuals may have the budgets and time to promote their values, the smaller, regional players may simply not be able to survive.”

The report is based on data from ICMIF and analysis of mutuals within the Group of Seven (G7) countries and in a number of other key countries.

The report cites the introduction of the Solvency II directive as one of the factors likely to drive consolidation among mutuals.

“Smaller mutuals will struggle to cope with the increased workload and capital requirements,” Esen said. “The challenge associated with complying with Solvency II in some cases represents an even greater hurdle than the current recession.”