North American P&C mutuals take hit during recession, but still able to grow earnings: A.M. Best

Canadian and U.S. property and casualty mutual insurers have taken a financial hit as a result of the global recession, but are nevertheless weathering the storm, a special report of A.M. Best says.
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 Oct. 2, 2009.
Globally, non-life mutual insurance companies saw their market share increase by 0.8% between 2007 and 2009. In Canada, mutual insurers’ market share stayed the same, at 15.7%, between 2007 and 2008.
Canadian and U.S. property and casualty mutual insurers “experienced turbulent years in 2007 and 2008, but they were able to record positive pretax operating incomes in both years,” A.M. Best says in its report.
In 2008, Canadian and U.S. mutuals in the P&C sector posted pre-tax operating earnings of US$1.368 billion, compared to US$14.5 billion in 2007.
“Unsurprisingly, in 2008 the mutual sector was unable to post a return on revenue [-14.3% in 2008, as opposed to +12.1% in 2007], and its combined ratio increased to 109.4%,” A.M. Best says.
“These losses, together with the increase in gross written premiums, could point toward a weakened capital position, but most mutuals claim to be well-capitalised.”
Regulatory changes following events that led up to the global recession could strain the information technology and financial resources of smaller mutuals, A.M. Best says.
“Smaller mutuals cannot compete easily with larger scale, international stock companies, let alone large mutuals,” the report says. “Fiercer competition, combined with high costs of management, IT and infrastructure, will force smaller mutuals to look at restructuring and reducing cost bases.”