The Mutual Factor
The 2022 Mutual Factor – 5 Years Later
The 2022 Mutual Factor report found that the mutual insurance industry ended 2021 with strong performance overall, with a record surplus of more than 13 percent growth. And despite a challenging first six months of 2022, the industry saw a return to some pre-pandemic normalcy. The annual update evaluated nearly 30 performance metrics for mutual insurance companies in 2021 compared to other insurer categories and assessed the impact of rating agency criteria on mutuals.
Among the key findings on financial performance:
In Q2 2022, the policyholder dividend ratio for mutual insurers was normalized to pre-pandemic levels at around 1 percent. Stock insurers dividend ratios remained flat through the pandemic as they returned money to insureds through premium credits.
Mutual insurers ran at an underwriting loss as a result of the challenging quarter for the industry. The combined ratio for mutual insurers for Q2 2022 was 113.8 percent compared to 97.0 percent for stock companies, which operated at an underwriting profit, aligning with their focus on returns.
In 2021, the industry hit a record $1.053 trillion in capital and surplus, growing 13.3 percent from 2020. Mutual insurers grew by 10.1 percent, while stock companies grew by 15.8 percent. The growth in surplus was mainly attributed to increase in unrealized capital gains and insurer income from the soaring stock market and declining interest rates. Mutuals’ five-year compound average growth of rate 7.4 percent, while stock companies’ five-year surplus growth rate of 9.1 percent, has been bumped up by strong 2021 results.
Decreasing and low interest rates remained a challenge for the insurance industry in 2021, with yields on invested assets remaining under 3.0 percent for mutual and stock companies alike, at or close to their lowest levels since the beginning of the financial crisis in 2008. Yields are slightly lower for mutual insurers, suggesting a somewhat more conservative fixed-income portfolio. However, the first half of 2022 saw a stark shift in this trend with rising yields and interest rates.
The 2022 Mutual Factor report conducted a series of in-depth interviews with 24 CEOs and senior executives from leading reinsurance companies in the U.S., Germany, the UK, and Bermuda. Companies ranged in size from small to very large global firms and included both publicly held and mutual companies. Specific highlights include:
Most reinsurers believe that extreme weather events are becoming more frequent and more severe. Many of these events (e.g., derechos, wildfires) are unmodeled and the true extent of risk may be unknown. These events have had a negative impact on reinsurers’ earnings in recent years.
Economic inflation, while expected to be short-lived, is a key year-end consideration. Social inflation is a looming concern and considered a more insidious problem by reinsurers.
Reinsurers see mutuals as a desirable and a stable part of their portfolios. Yet, some very large reinsurers value working with the largest mutual insurers, feeling it is uneconomical to deal with smaller, regional mutual companies.
Growth is not a key criterion used by reinsurers in assessing the financial health of mutual insurers. In fact, rapid growth is a red flag, unless there is a solid strategy behind it. In general, reinsurers look at results, ratings agencies, key ratios, and management as the most important factors.
GET YOUR COPY OF THE 2022 REPORT
Find out:
How reinsurance industry thought leaders view the challenges facing their industry along with their insights on the value of their relationships with the mutual sector;
How the mutual industry performed in the first two quarters of 2022; and
Year-over-year data over the last five years and how mutuals compare to other insurers in the industry.
THE 2021 MUTUAL FACTOR
The mutual property/casualty insurance industry remains financially sound despite the uncertainty created by the ongoing COVID-19 pandemic and an increasing number of severe natural disasters. That is the conclusion of the fourth annual market performance analysis released during its 126th annual convention by the National Association of Mutual Insurance Companies and its partner, Aon.
The latest report, “Mutual Factor 2021: How Performance, Structure, and Focus Set Mutual Insurance Companies Apart, evaluated nearly 30 performance metrics for mutual insurance companies in 2020 compared to other insurer categories and assessed the impact of rating agency criteria on mutuals. Similar to last year’s report, the newest Mutual Factor Report analyzed performance metrics for the first two quarters of 2021 and shared findings from a recent survey of independent insurance agents.
Among the key findings from the 2021 Mutual Factor:
In response to the challenges faced by policyholders during COVID-19, we estimated that the industry returned nearly $13 billion in premiums throughout 2020, with mutual insurers returning $6.1 billion mainly through policyholder dividends, while stocks returned $6.8 billion primarily through premium credits. In Q2 2021, the policyholder dividend ratio for mutual insurers was normalized to pre-pandemic levels of around 1 percent. Stock insurers dividend ratios remained flat through the pandemic as they returned money to insureds through premium credits.
Mutual insurers ran at an underwriting loss as a result of their increased policyholder dividend ratio. The combined ratio for mutual insurers for Q2 2021 was 100.3 percent compared to 95.6 percent for stock companies, which operated at an underwriting profit, aligning with their focus on returns.
Mutual companies are well capitalized with median Best’s Capital Adequacy Ratio at the VaR 99.6 of 61 percent, 9 points higher than stock companies at 62 percent. Eighty-nine percent of mutual companies also have the “Strongest” or “Very Strong” balance sheet strength compared to 81 percent for stock companies.
The 2021 Mutual Factor Report surveyed 200 independent insurance agents from across the country to assess their perceptions of mutual insurers in comparison to stock and other types of insurance companies. Specific highlights include:
Mutual companies are perceived as delivering better than other companies on six key criteria used by agents to select insurance companies. Among the criteria in the top tier of importance, mutual companies were rated higher on two key metrics: excellent communications with agents and always settle claims fairly.
The more favorable perceptions of mutuals among agents translates into positive business for mutual insurance companies, with the share of agents’ business among mutuals at 55 percent compared to 45 percent for stock companies.
GET YOUR COPY OF THE 2021 REPORT
Find out:
How independent insurance agents view mutual companies in comparison to stocks and what challenges agents see for the future.
How the industry performed in the first two quarters in 2021 amid the ongoing pandemic
Year-over-year data and how mutuals compare to others in the industry.
The 2020 Mutual Factor
The mutual property/casualty insurance industry remains financially sound despite the tumultuous first half of 2020 and is well positioned for the future. That is the conclusion of the third annual market performance analysis released during the 125th convention by the National Association of Mutual Insurance Companies and its partner, Aon.
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 2019 compared to other insurer categories and assessed the impact of ratings agency criteria on mutuals. The 2020 report goes a step further, however, in recognition of the unparalleled circumstances facing the insurance industry as the result of the COVID-19 pandemic. The 2020 Mutual Factor report also analyzed performance metrics for the first two quarters of 2020 and looked at how thought leaders perceive the mutual industry.
Among the key findings from the 2020 Mutual Factor:
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In response to the challenges faced by policyholders during COVID-19, the report estimated that the industry returned nearly $9 billion in premiums in Q2 2020, with mutual insurers returning $4.5 billion mainly through policyholder dividends, while stocks returned $4.3 billion primarily through premium credits.
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In Q2 2020, 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
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Mutual companies are well capitalized with 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, compared to 79 percent for stock companies.
In a survey of 22 industry executives across different sizes and lines of business, the 2020 Mutual Factor report sought to gain perspective on what challenges the industry currently faces and will face in the future. Specific highlights include:
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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.
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The executives highlighted the benefits of being a mutual insurer and the commitment mutual insurers place on impacting their communities and to diversity.
GET YOUR COPY OF THE 2020 REPORT
Find out:
What leaders in the industry see as the challenges and opportunities that lie ahead.
How the industry performed in the first two quarters in 2020 amid the pandemic
Year-over-year data and how mutuals compare to others in the industry.
THE 2019 MUTUAL FACTOR
Released during NAMIC’s 124th Annual Convention, the new expanded edition of the Mutual Factor includes a comparison of nearly 30 metrics across mutual, stock, and other categories. And just as the first report did last year, this new analysis adds further evidence to support the overall strength and stability of mutual companies. The 2019 report, developed jointly by NAMIC and Aon, not only looks at key market performance metrics for mutuals, but also at how mutuals are rated under the AM Best Credit Rating Methodology Framework.
The 2019 Mutual Factor broadens the scope of the data analyzed from 16 metrics in 2018 to 28 metrics in 2019. And, thanks to the involvement of Aon, the new Mutual Factor also takes a comprehensive look at the performance of more than 600 insurers under the BCRM framework. The bottom line is – like last year’s report – mutuals remain consistently strong, with more data to substantiate that statement.
The key findings in the Mutual Factor include:
Mutual insurers were slightly less leveraged than their stock counterparts in 2018, with $1.23 in policyholder surplus backing up each dollar in net premiums written compared to $1.20 for stock insurers.
In 2018, the dividend ratio, a gauge of the proportion of premium returned to policyholders, was five times larger for mutuals than for stock companies.
Capital and surplus in the mutual segment grew by 1.8 percent in 2018, an improvement in comparison to stock companies that saw surplus growth decline by more than 3 percent due to higher underwriting costs.
Mutual companies are well capitalized with 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, compared to 78 percent for stock companies.
GET YOUR COPY OF THE 2019 REPORT
Find out:
How mutuals compare to other in the property/casualty insurance industry
How mutuals stack up against AM Best ratings
What commercial insurance customers think about mutuals
THE 2018 MUTUAL FACTOR
The 2018 Mutual Factor was developed jointly by NAMIC and Robert Hartwig, Ph.D., director of the Center for Risk and Uncertainty Management at the University of South Carolina. The analysis evaluated 16 different performance metrics for 2017, comparing mutuals, stock companies, and other insurers.
Among the key findings of the study were:
Mutual insurers were less leveraged than their stock counterparts in 2017, with $1.89 in policyholder surplus backing up each dollar in net premiums written, compared to $1.64 for other insurers.
The dividend ratio, a gauge of the proportion of premium returned to policyholders, was eight times larger for mutuals.
Mutual companies are more likely to temper the pace of rate increases, resulting in greater price stability, because they are not as driven by the need for short-term profitability.
Capital and surplus in the mutual segment grew by more than 8 percent in 2017 – very strong by historical standards and despite heavy CAT losses.
