The National Association of Mutual Insurance Companies (NAMIC) and Aon have taken another step toward understanding how mutual insurers’ performance, structure, and focus set them apart from other insurance entities with this week’s release of their fourth annual market analysis of the mutual insurance industry.

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 latest Mutual Factor Report analysed performance metrics for the first two quarters of 2021 and shared findings from a recent survey of independent insurance agents.

Neil Alldredge, NAMIC President and CEO, noted that 2020 is likely to be remembered as one of the most significant years in history for the insurance industry because of the pandemic and severe storms and wildfires. As such, some significant performance impact was anticipated, but that’s not what the data showed.

“Perhaps what is most surprising about the 2021 Mutual Factor Report is how similar the industry’s performance in 2020 was to previous, less challenging years,” Alldredge said. “The biggest takeaway from this new report is the enduring success of the mutual model and the value of the long-term approach that is the foundation of the mutual industry.”

The report looks at some distinctions in the key measures of operating performance between mutual and stock insurers and the industry overall through June 2021, during 2020, and over a five-year period. In addition, the report analyses the impact of rating agency criteria on mutuals.

Chris Delhey, Senior Managing Director and Aon’s Mutual Practice Group Leader, reflected on the joint effort with NAMIC.

“Aon could not be prouder to continue our partnership with NAMIC on this important benchmarking report. Each year we take a hard look at these studies and seek to make improvements and additions that will make the information and data even more useful to mutual insurers and their leadership,” Delhey said.

“The 2021 edition takes another step forward in terms of content. The data included as well as the input received from the mutual insurance companies’ agency force continue to signal a strong and growing mutual marketplace that is distinctly focused on policyholders,” he continued. “It is exciting to see the considerable efforts of so many people in the mutual universe, particularly under this past year’s difficult conditions, so clearly manifested in this report.”

Among the key findings from the 2021 Mutual Factor Report:

• In response to the challenges faced by policyholders during COVID-19, it was estimated that the industry returned nearly USD 13 billion in premiums throughout 2020, with mutual insurers returning USD 6.1 billion mainly through policyholder dividends, while stocks returned USD 6.8 billion primarily through premium credits. In Q2 2021, the policyholder dividend ratio for mutual insurers was normalised 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.
• Although there was an increase in losses and loss adjustments, or LAE, the growth in net earned premium offset these losses and, therefore, resulted in a slightly lower loss and LAE ratio (70.2 percent) compared to 2019 (71.0 percent) for the industry. Mutual insurers recorded loss and loss adjustment expenses of 70.3 percent of premium for 2020 compared to 72.5 percent for 2019, and stock companies came in slightly lower at 70.1 percent for 2020 compared to 70.0 percent in 2019.
• Expense ratios remained consistent year-over-year across all segments of the insurance industry, with the expense ratio of mutual insurers and stock insurers being 27.5 percent and 27.4 percent for 2020, respectively compared to 27.1 percent for both. The expense ratio is similar for mutuals and stocks on a five-year basis as well.
• In 2020, the industry hit a record USD 932 billion in capital and surplus, growing 7.4 percent from 2019. Mutual insurers grew by 8.3 percent, while stock companies grew by 6.7 percent. The growth in surplus was mainly attributed to an 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 6.6 percent, which outperform stocks companies’ five-year surplus growth rate of 6.4 percent.
• In the first half of 2021, there were a total of 26 companies upgraded by AM Best. Of those, 73 percent of the companies were mutual compared to stock. The same time period saw only 33 percent of the 15 downgrades attributed to mutual companies when compared to stock. Mutual companies are well capitalised with median Best’s Capital Adequacy Ratio at the VaR 99.6 of 61 percent, 9 points higher than stock companies at 52 percent. Eighty-nine percent of mutual companies also have the “Strongest” or “Very Strong” balance sheet strength compared to 81 percent for stock companies.

Survey of Independent Insurance Agents

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 favourable 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.
• Another key finding of the survey is the perception among independent agents that most demographic segments are better served by mutual companies than by stock companies. Agents also believe that some demographic groups – namely millennials, Gen X, urban, and women – are better served by larger mutual companies than by smaller companies.