Focus On The Future Options For The Mutual Insurance Company

Focus On The Future: Options For The Mutual Insurance Company

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Conclusions and Recommendations

As the only national property/casualty trade association with full membership restricted to mutuals, NAMIC approached these issues with care and a sense of the responsibility incumbent on a representative of the mutual community. Our members have expressed a need for unbiased, factual information expressing the mutual perspective. NAMIC has sought to fulfill that need through the commissioning of a major study, Capital Enhancement Strategies for Mutual Property and Casualty Insurance Companies. This study, prepared by PricewaterhouseCoopers, LLP, and LeBoeuf, Lamb, Greene & MacRae, L.L.P., is currently available for order through NAMIC, and the Task Force recommends that members consider purchasing it. Additionally, the NAMIC Board of Directors created this Task Force to inquire into current issues with the particular insight that only NAMIC member company executives can bring to mutual matters. From these studies, several major conclusions and recommendations emerge.

First, the Task Force has come away from its work with its convictions reinforced about the continuing long-term viability of the mutual form for property/casualty companies. Mutuality has served its policyholders well for centuries and should continue to do so in the next century with proper management and creative attention to new challenges.

Second, these new challenges include take-over issues and consequent director and officer responsibilities that, although long familiar to stock company executives, are new to mutuals. This set of new issues demands the continued efforts of company board members and officers to stay abreast of corporate governance issues, as discussed in this report and the Capital Strategies monograph.

Third, the Task Force has thoroughly reviewed the various legislative changes that many states have enacted over the last few years. These legislative changes permit subscription rights demutualizations and creation of mutual holding companies. While recognizing that these new legislative alternatives may not be appropriate for every mutual company, it is appropriate that all possible alternatives be available for mutual company management. Enriching the menu of options available to mutual company management enhances the ability to assure the best long-term service to policyholders.

In particular it is noted that, in connection with financial services reform and Federal banks-in-insurance legislation, installation of mutual holding company legislation in the states is essential to permit mutuals desiring bank affiliation to compete on a level playing field while preserving their mutuality. That is why NAMIC's Financial Services Task Force, in its final report, stated that "NAMIC members endorse the adoption by states of legislation to allow a mutual holding company."

Fourth, some mutual property/casualty insurance companies have legitimate needs for capital beyond traditional growth of surplus from underwriting operations. There are a variety of approaches to capital enhancement, outlined in this paper's previous discussion and developed in detail in the Capital Enhancement Strategies monograph. Contrary to the representations of some investment bankers and other interested parties, it is clear that alternative approaches such as merger, affiliation, shared services, surplus notes and capital notes continue to be viable in appropriate circumstances. It is noted that NAMIC has sought to enhance the attractiveness of the surplus note alternative by sponsoring its surplus note facility with the National Cooperative Bank through Snyder & Company.

Finally, these conclusions and recommendations illustrate the importance of developing a well-defined decision process when considering alternatives. Financial considerations are not the only factors that must be considered. There are cultural, community relations, executive compensation, shareholder relations, take-over protection, and other issues that may outweigh purely financial concerns in seeking to protect the policyholders' future. The Task Force has sought to tap the collective wisdom of NAMIC members who have experience with different alternatives and these are discussed in this report's outline of a decision analysis (as well as in the monograph).

Probably most NAMIC members, after a careful consideration of alternatives, will conclude that the traditional mutual form remains a viable vehicle for service to policyholders in the next century. The Task Force has sought to present a well-documented review of all the options and to suggest a decision process that will enable NAMIC members to "focus on the future" to achieve the same levels of success and policyholder service they have achieved in the past.