New Year, New Hope


New Year, New Hope

Charles M. Chamness | President & CEO, NAMIC

I’m an optimist, and I believe that every year brings new opportunities. As we begin 2010, our mutual segment of the industry includes the largest and the smallest, and every size in between, property/casualty insurance companies in North America. And while business has been tough in this soft market, we have inherent strengths and new opportunities for mutual insurance companies in the United States and Canada. No matter what size, whether a household name or an obscure niche player, it’s a great time to be a mutual, reciprocal, or closely held stock company.

Let’s start by naming three fundamental strengths we possess:

  1. We’re conservative and safe. Just consider our ability to come through the historic financial crisis of 2008 with nary an insolvency or request for government intervention. But it’s not surprisin. As you’ll recall in our Sarbanes Oxley advocacy, NAMIC commissioned an analysis showing that during the period between 19801999, mutuals wrote 33 percent of the market and, yet, were responsible for only 5 percent of the total cost of insolvencies.
  2. We take the long-term view. No quarterly calls with analysts, no worries about the day-to-day fluctuation in stock price, no qualms about earning a return for stockholder-owners. And with no shareholders, mutual insurers can reinvest profits to give policyholders better value and higher levels of service, even dividends in some cases. It’s no wonder that mutuals consistently rank at the top of various customer service awards and “Top Performer” lists in the industry.
  3. Policyholder-agent-employee alignment. Mutuals are uniquely aligned with their policyholders, often enjoy a special relationship with their agents, and value their employees as the primary non-financial assets of the company. Further, many mutuals – regardless of size – look different to their policyholders, seeming more like communities than companies. A.M. Best’s recent special report “Mutuals Under the Microscope as Market Share Grows” points to “neighbor-helping-neighbor” aspect of mutuality. The report says: “In a mutual, policyholders theoretically work together for the good of their community or affinity group.”

And speaking of communities, as the mutual insurance trade association, it is NAMIC’s job to be your community. We will do everything we can to make sure your companies thrive for years to come, whether it’s our work ensuring that mutual insurance companies have access to holding company structures under Gramm-Leach-Bliley (we do, thanks to our “community” work) or opposing efforts by the NAIC to enact SOX-based changes to the Model Audit Rule (NAMIC led the advocacy against this proposal, and our work resulted in a savings of $446 million in compliance costs for non-public companies). NAMIC has been engaged as a critical amicus party in two recent and notable lawsuits specifically addressing mutual insurance company governance issues surrounding board discretion regarding policyholder surplus and dividend declarations.

Additionally, NAMIC has provided focused and ongoing efforts that address the mutuality of our membership. In particular, we have created resources specifically designed to address mutual structure issues in governance and finance, including our Directors’ Education series; on-site board governance training and education; and CEO Roundtables and Financial Focus seminars addressing mutual issues. New efforts in executive-officer training will incorporate mutual-specific education – including mutual company simulation exercises. Our new Public Relations Workshop (launched last August) addresses “marketing mutuality” as a distinct public relations issue.

NAMIC has issued publications during the last several years that examine governance, finance, and rating issues from a mutual company perspective, including “Analysis of the Role, Function, and Impact of Rating Organizations on Mutual Insurance Companies;” “Focus on the Future: Options for the Mutual Insurance Company;” and “Report of the NAMIC Structural Strategies Task Force; Proxy Practice; and Financial Literacy.” Current work in this area includes maintenance of several resource centers, and helping to coordinate and promote a surplus notes facility for members interested in pursuing this capital option.

Coming out of the financial crisis, we have a unique opportunity to define “the mutual difference” with our policyholders and agents. People are paying attention, and they’re bringing a healthy dose of skepticism about financial institutions. Let’s redouble our efforts to show them the benefits of our “community!”

Corporate Governance

Mutuals Under the Microscope As Market Share Grows