Best Report Forecasts More Mutual Partnerships as Challenges Mount

A new report from A.M. Best notes that mutual insurance companies “have generally entered and emerged from the economic downturn in a strong position, but any advantage they currently have over conventional insurers could be short-lived.”

Best’s research states that, “although mutuals in the main are well capitalized, as economies around the world continue to recover, their limited financial flexibility is among the biggest challenges facing the sector.”

Yvette Essen, the report’s author and head of market analysis for Best¹s global financial services division, concluded that the growth potential for mutuals could become limited, given the difficulties facing mutuals in accessing the capital markets to raise money. “In comparison, conventional insurers quoted on the stock markets have greater opportunities to fund expansion as the capital markets reopen,” she noted.

Best said the report found that “mutuals have been able to grow during the recession but the planned introduction of Solvency II in 2012 is a major issue for some European mutuals. New insurance regulation could lead to some small and medium-sized mutuals ceasing to exist if capital demands become too onerous.”

Essen explained: “Financing challenges are expected to create hurdles for some mutuals, particularly the smaller European ones, which are anticipating increased capital requirements from Solvency II. The need to also achieve scale, combined with the limited financing opportunities for mutuals, will lead to more affiliations, partnerships and joint ventures.
The global mutual landscape could be on the brink of changing significantly.”

The report has been released ahead of the International Cooperative and Mutual Insurance Federation’s 20th Meeting of Reinsurance Officials (MORO), to be held 16 -19 May 2010 at the Dorint Pallas Hotel in Wiesbaden, Germany. Best is a sponsor and will participate in the conference.

To download a PDF copy of the full report at no cost, go to: www.ambest.com/research.

Source: A.M. Best

Topics Trends Mergers & Acquisitions