The 2022 Mutual Factor report found that the mutual insurance industry ended 2021 with strong performance overall, with a record surplus of more than 13 percent growth. And despite a challenging first six months of 2022, the industry saw a return to some pre-pandemic normalcy. The annual update evaluated nearly 30 performance metrics for mutual insurance companies in 2021 compared to other insurer categories and assessed the impact of rating agency criteria on mutuals.

Among the key findings on financial performance:

  • In Q2 2022, the policyholder dividend ratio for mutual insurers was normalized to pre-pandemic levels at 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 the challenging quarter for the industry. The combined ratio for mutual insurers for Q2 2022 was 113.8 percent compared to 97.0 percent for stock companies, which operated at an underwriting profit, aligning with their focus on returns.

  • In 2021, the industry hit a record $1.053 trillion in capital and surplus, growing 13.3 percent from 2020. Mutual insurers grew by 10.1 percent, while stock companies grew by 15.8 percent. The growth in surplus was mainly attributed to 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 7.4 percent, while stock companies’ five-year surplus growth rate of 9.1 percent, has been bumped up by strong 2021 results.

  • Decreasing and low interest rates remained a challenge for the insurance industry in 2021, with yields on invested assets remaining under 3.0 percent for mutual and stock companies alike, at or close to their lowest levels since the beginning of the financial crisis in 2008. Yields are slightly lower for mutual insurers, suggesting a somewhat more conservative fixed-income portfolio. However, the first half of 2022 saw a stark shift in this trend with rising yields and interest rates.

The 2022 Mutual Factor report conducted a series of in-depth interviews with 24 CEOs and senior executives from leading reinsurance companies in the U.S., Germany, the UK, and Bermuda. Companies ranged in size from small to very large global firms and included both publicly held and mutual companies. Specific highlights include:

  • Most reinsurers believe that extreme weather events are becoming more frequent and more severe. Many of these events (e.g., derechos, wildfires) are unmodeled and the true extent of risk may be unknown. These events have had a negative impact on reinsurers’ earnings in recent years.

  • Economic inflation, while expected to be short-lived, is a key year-end consideration. Social inflation is a looming concern and considered a more insidious problem by reinsurers.

  • Reinsurers see mutuals as a desirable and a stable part of their portfolios. Yet, some very large reinsurers value working with the largest mutual insurers, feeling it is uneconomical to deal with smaller, regional mutual companies.

  • Growth is not a key criterion used by reinsurers in assessing the financial health of mutual insurers. In fact, rapid growth is a red flag, unless there is a solid strategy behind it. In general, reinsurers look at results, ratings agencies, key ratios, and management as the most important factors.

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Publish Date

April 26, 2024