Conning study looks at difference in mutual v. stock co. growth

Mutuals and stock insurance companies have decidedly different growth strategies, as outlined in a new study by Conning Research & Consulting Inc.
The study, “Mutuals and Stock in the P-C Industry: How Does Your Company Grow?” finds that while large stock companies have outperformed mutuals in terms of underwriting for the years 1998-2002, small mutual were actually outperforming their stock peers.
Much of the difference between stock and mutual insurers is linked to capital availability and the demands shareholders place on stock companies. “Clearly the easier capital access afforded the stock companies a leg up on setting and meeting more aggressive growth objectives” says Stephan Christiansen, director of research at Conning. “But the mission of mutuals is decidedly different than that of stock companies. Our study found that differences in geography, legal systems, line of business concentration and risk tolerance define the growth opportunities for mutual and stock insurers. Mutuals grow to meet the need, while stock companies need to grow to survive.”
Along these lines, stock companies tend to hold more conservative investment portfolios but to pursue growth in more profitable commercial lines segments, and in high-growth states such as Florida, California and Texas. Mutuals, on the other hand, investment in riskier equities, are heavily concentrated in personal lines and have prominence in states with low growth but which tend to have more conservative tort environments.
The irony is that stock companies must pursue riskier growth strategies while they invest conservatively and attempt to produce stable results for shareholders. Mutuals do not pursue growth, but grow in response to a need amongst policyholders for more coverage, yet invest less conservatively. Mutuals produce lower loss ratios and combined ratios, the study notes, and tend to avoid the risk of catastrophic loss as they lack the ability to replenish capital to the same degree as stock companies.