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A.M. Best: Mutual Insurers to Continue Growth but Smaller Players Struggle for Survival

Source: AM Best

Posted on 06 Oct 2009

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Mutual insurance companies are well placed to continue to grow market share in the wake of the credit crisis, but they also face a vast range of challenges, new research reveals.

The special report by credit ratings agency A.M. Best Co. shows that mutuals currently make up 26.5% of the world’s insurance premiums, compared to 25.2% a year earlier. It adds mutuals could increase their presence further as they are perceived to be relatively safe and can offer more competitive prices to well defined affinity groups than stock companies as they do not face the same pressures in terms of returns to shareholders.

The research report, “Mutuals under the microscope as market share grows,” was launched by A.M. Best at the International Cooperative and Mutual Insurance Federation (ICMIF) Biennial Conference in Toronto on October 2, 2009.

Speaking at the conference, Nick Charteris-Black, Director of Global Financial Services at A.M. Best, said, “Mutuals are being presented with opportunities to exploit their values and build on customer loyalty during the continued economic uncertainty.

“However, they do also face a host of challenges and lack the financial flexibility of stock companies. For some mutuals, the future is uncertain.”

The report is based on data from ICMIF and on in-depth analysis of mutuals within the Group of Seven (G7) countries and in a number of other key countries. It predicts some mutuals will be forced to merge and create partnerships in a bid to survive aggressive competition and regulatory pressures.

Yvette Essen, report author and Head of Market Analysis, Global Financial Services at A.M. Best, said, “These challenges are expected to drive consolidation and partnerships around the world, particularly among smaller mutuals looking to share central resources. While the bigger mutuals may have the budgets and time to promote their values, the smaller, regional players may simply not be able to survive.”

The report cited the introduction of the Solvency II directive as one of the factors likely to drive consolidation among mutuals. Ms Essen said, “Smaller mutuals will struggle to cope with the increased workload and capital requirements. The challenge associated with complying with Solvency II in some cases represents an even greater hurdle than the current recession.”