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:
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.
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
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:
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.
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.
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.
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 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.