Mutuality


While mutual insurance companies are most common in the United States, there are significant numbers of mutual companies throughout Europe, Australia, and they are emerging in African and Asian countries. One reason for the emergence of new mutual companies globally is the need for micro-insurance for policyholders far from cities with limited access to insurance products. In these communities, the mutual or cooperative structure has been essential in the development of risk-sharing between community members. For these reasons, the International Association of Insurance Supervisors directed attention at the roadblocks and other problems regulation can create for the success of mutual and cooperative insurance organizations.

In 2016, the IAIS Financial Inclusion Working Group issued a draft application paper on the value of Mutuals, Cooperatives, and Community-Based Organizations focusing on mutual insurers. The paper does an outstanding job of conveying the importance of mutual insurers to the overall insurance industry and to their policyholders all around the world. NAMIC shares the views expressed in the MCCO Application Paper about the value of the mutual and cooperative insurance structure.

The paper noted that mutual insurers rely completely on capital other than common stock for their capital resources. Their growth in surplus arises predominantly from prudent management resulting in strong retained earnings. Mutual insurers also recognized the differences in corporate governance, licensing, and supervision.

The paper noted that in the mutual insurance context, the policyholders’ interests and the company interests are more directly and practically aligned acknowledging how this was different than the situation for stock companies. Actions of a mutual insurer to control costs, maximize value, increase surplus, invest assets, and market its products, ultimately benefit its policyholders. This focus on the policyholder is reflected in the mutual insurer’s board composition, its sources of and access to capital, its merger/acquisition practices, its financial reporting practices, its tax treatment, and its licensing under some countries’ laws. Without careful design of standards and legislative/regulatory requirements to address the differences between mutual and stock insurers, those companies structured as mutuals are unfairly disadvantaged in the marketplace.

NAMIC Position

NAMIC supported the good work of the IAIS on this paper and urged the following:

  1. Mutual differences should be recognized regardless of company size.

  2. Supervisors should recognize that mutuals have unique and limited capital resources.

  3. Most mutuals do not file annual financial reports on the same basis as public companies. They tend to use more conservative regulatory accounting principles and procedures. This should be recognized for all mutuals as an acceptable valuation methodology.