Mutual Insurers versus Public Companies? The Feeling's Mutual

The recession is blowing in the wind, but in the right direction for the mutual insurance industry, according to a report by insurance company rater A.M. Best.
Best's report shows that mutual companies have added more than a percentage point to their premiums during the last year, up to 26.5 percent from 25.2 percent of global market share. And they could increase their share even further, says the rating agency.

To put this in perspective: mutual companies like State Farm, Liberty Mutual and Pacific Life are likely gaining, probably at the expense of publicly traded insurance companies like Allstate, Travelers and Chubb, although the study doesn't give specifics.

Unlike the three major credit raters, Standard & Poor's, Moody's Investors Service and Fitch Ratings, A.M. Best adheres strictly to insurance. Consequently, it hasn't incurred the wrath of Congress and investors for mispricing mortgage securities like the other three.

A.M. Best says mutuals, which are owned by policyholders rather than shareholders who demand dividends and price appreciation, are perceived to be relatively safe, can offer more competitive prices in most instances, and do not have the same pressure, in terms of returns to shareholders, as stock companies.

But there's a catch. The industry as a whole is about to get more competitive and mutuals may "lack the financial flexibility of stock companies (which can raise capital with share or debt offerings)," says A.M. Best. That could force mergers between smaller mutual companies.

One sleeping mutual giant that may be about to awaken is Columbus, Ohio-based Nationwide Mutual. During the last year Nationwide took several steps that indicate it's going to be a more serious competitor. In January the mutual bought all the remaining shares of its public unit, Nationwide Financial Services, effectively taking itself private. Then in February it got rid of CEO Jerry Jurgensen, replacing him with Steve Rasmussen, an old-line insurance guy.

Insurance insiders saw this as a return to the company's roots in insurance rather than financial services, and in recent interviews Rasmussen has said he plans to "take market share (by) ... keeping costs down." He told the Columbus Dispatch that "We want (the customer's) auto and home and life insurance and banking and we want to get up to five or six (products) per household."