Hurdles to growth likely to create shifts in global mutual landscape: A.M. Best

Although mutual insurers generally fared the economic downturn better than their non-mutual insurer counterparts, mutuals’ growth potential may be limited in the post-recession economy, A.M. Best reports.
The limited growth potential will likely lead to more affiliations, partnerships and joint ventures, A.M. Best suggests.
In its Special Report: Global Mutual Insurance, A.M. Best suggests limited financial flexibility, impending implementation of Solvency II rules in Europe, growing regulatory requirements and imperatives to cut expenses will pressure the mutual sector.
The limited financial flexibility of mutual insurers is among the biggest challenges for the sector, limiting potential growth, A.M. Best reported.
“As mutuals are unable to access the capital markets to raise money, they tend to retain accumulated capital,” A.M. Best says.
“Investment portfolios tend to be largely in bonds and fixed-income products, rather than in riskier investment products such as collaterized debt obligations.”
In comparison, conventional insurers quoted on the stock markets have greater opportunities to fund expansion as the capital markets reopen.
“Coming out of the credit crisis, mutuals are generally well-placed with robust capital positions, and many have been able to grow during the recession,” the report says.
“However… the lack of access to capital limits possibilities to grow, and a mutual that raises or borrows capital could be placed into a more vulnerable position and at a disadvantage to its non-mutual peers.”
These hurdles are particularly acute for smaller firms that anticipate increased capital requirements from Solvency II.
“The need also to achieve scale, combined with the limited financing opportunities for mutuals, will lead to more affiliations, partnerships and joint ventures,” the report says.
“The global mutual landscape could be on the brink of changing significantly.”