The insurer-insured relationship is different for mutual and stock companies, which creates differing goals from a strategic perspective and a risk management perspective. The earliest mutual and cooperative insurers were formed in instances where there was a shortage of capacity to provide accessible or affordable coverage. Mutuals were formed to offer core and niche insurance products to a membership or affinity group. Today, the mutual sector has a huge opportunity to return to these niche products as a differentiator, using specialty underwriting expertise and reinsurance to help with risk diversification. Länsförsäkringar (Sweden) were formed in 1801 as a group of regional mutual insurance companies, so it has always used reinsurance in a strategic way to help grow its operations.

Mutual companies are well designed to innovate and meet the new and unique emerging needs of their policyholders in a more efficient manner than larger companies, due to their nimble corporate structure and proximity to customers/members. From a reinsurance perspective, working with mutual organisations to create new innovative solutions, fills a desire for reinsurers to get closer to end consumers.

Mutual insurers cherish deep and long-term relationships. It is easier for mutual companies to leverage this in how they partner with like-minded reinsurers. Their loyalty to their policyholder, rather than stock insurers’ loyalty to shareholders, creates a culture that is more relationshiporiented. This gives mutuals an advantage in terms of how they look to collaboratively create value with their reinsurer partners.

Lots of similarities do exist between mutual and stock insurance companies from a reinsurance standpoint. Business lines, operations and size are sometimes more differentiating factors than legal structure. In terms of how AM Best’s rating methodology views reinsurance, it sees no difference in how different companies purchase reinsurance. However, it does observe a difference in the operating performance of mutual and stock insurance companies.

The ultimate goal of a mutual insurer is not necessarily the same as a stock company, and so there are differences in profitability and loss ratio targets. In the USA, 86% of rated mutual companies are very strong or strong in terms of balance sheet strength. This is a representation of their long-term approach. Combined ratios also tend to be higher – partly due to a strategic emphasis on paying claims to policyholders – but are much less volatile year-on-year than stock competitors.

One of the competitive advantages of mutual insurers is that they do not have to react to market trends as quickly as stock companies. For example, in 2015 and 2016 when the frequency and severity of US auto claims increased, stock companies increased their rates as an immediate response. The mutual sector took a more gradual approach and this helped them with policyholder retention compared to stock companies in the following years.

At The Co-operators (Canada), retention is a little higher than comparable companies in its market, as the priority is to protect its balance sheet in order in turn, to protect the interests of policyholders. When assessing its reinsurance panel, it looks at whether the potential partner is a mutual or cooperative, even if it is a member of ICMIF.

The Co-operators also looks at reinsurer partners’ commitment to sustainability and social responsibility and is also beginning to look at their financial disclosures related to climate change. Capital and financial strength are still baseline factors, but there is a preference to partner with those that have the same principles and values. This is a question that is being asked more at board level and becoming more influential in the decision-making process for potential partners (reinsurance, vendors, etc).

In the current reinsurance market, the abundance of capital requires insurers to effectively utilise their capital. Although there are alternative capital options (such as ILS solutions), in the current market, the most efficient solution is staying with traditional reinsurance partners. Choosing an effective partnership helps mutual insurers take advantage of this additional capacity to expand and grow.

Future growth for insurers will come from addressing the new needs of customers and underserved markets, as well as embracing insurtech and innovating to respond to emerging risks. Mutual insurers have the agility and culture to leverage this as an advantage over others in the market. Mutuals’ local knowledge (of policyholders and niche risks) is their strongest competitive advantage. Developing new solutions by listening to clients helps to deliver mutual value – something that is measured by more than just underwriting profitability.

Session panellists:

• Greg Williams, Senior Director, A.M. Best (USA)
• Geoff Lubert, Executive Vice President and Managing Director, Willis Re Canada (Canada)
• Tor Mellbye, Reinsurance Manager, Länsförsäkringar Sak (Sweden)
• Samuel Broomer, Executive Vice President and Chief Operating Officer, Berkley Re Solutions (USA)
• Steve Johnston, Director, Corporate Reinsurance, The Co-operators (Canada) moderator