Insurance mutuals take financial hit from increased risk, says report

The National Association of Mutual Insurance Companies study shows the sector is well capitalised despite the challenges

A report from the National Association of Mutual Insurance Companies (Namic) reveals that insured catastrophe losses in the US stayed at heightened levels through the second quarter of 2023.

According to the report, mutual insurers faced a challenging start to the year, with a significant impact on financial performance in the property/casualty insurance sector.

Meanwhile, the mutual insurance segment faced increasing pressures from weather and reinsurance factors yet has held steadfast in its focus on policyholders. 

“The mutual industry is feeling the impact of a confluence of factors including extreme weather, litigation abuse, inflation, rising reinsurance costs, and other economic pressures,” said Neil Alldredge, Namic president and CEO. “Everything, everywhere, all at the same time captures the unprecedented scope of the current conditions facing insurers, yet despite this difficult time, the 2023 Mutual Factor report demonstrates that mutuals have the strength and stability to withstand what is fast becoming a new era of risk.”

Published annually since 2018, Namic’s report provides an updated look at multiple performance metrics. The 2023 edition also revealed that while Q1 catastrophe losses for this year trail the exceptional costs from the devastating winter storm Uri which hit the US in 2021, 2023 is already well above longer-term averages. The activity impacting several areas of the US to start the year was largely driven by the severe convective storm peril.

Despite these challenges, the report found that mutual companies are well capitalised with median Best’s Capital Adequacy Ratio at the VaR 99.6 of 58%, seven percentage points higher than stock companies at 51%. Furthermore, according to the report, 89% of mutual companies also have the “Strongest” or “Very Strong” balance sheet strength, compared to 81% for stock companies.

“The 2023 Mutual Factor highlights the strong capital position of the mutual insurance segment, reflecting the industry’s continued commitment to strengthen balance sheets to support policyholders and the broader economy through these unprecedented times,” said Abbe. “The report emphasises a continued and evolving perfect storm of challenges for the industry. The impacts of inflation, severe weather, a difficult reinsurance market, and a volatile economic environment are contributing to carriers’ challenging operating results through the first half of 2023. 

“Through collaborative efforts, our aim is to help the industry navigate this volatility and help shape better decisions. The industry works diligently with all constituents to enhance insurance operations, allowing the mutual insurance segment to maintain its critical function in our lives and in our economy.”

Another report by Gallagher Re, a supporting member of the  International Cooperative and Mutual Insurance Federation (Icmif) described the first three quarters of 2023  as “active and impactful” with elevated natural catastrophe losses globally. 

According to Gallagher Re’s Q3 2023 Natural Catastrophe Report, total economic losses were estimated at US$290bn.

The report estimates that 2023 is on track to become the sixth year since 2017 to exceed US$100bn in annual insured losses. 

As a reinsurance broker, Gallagher Re is a supplier to the insurance industry and it works with the co-operative/mutual insurance sector.

“The insurance protection gap highlights how much opportunity exists to better prepare global citizens for natural catastrophe risk. While this opportunity is most urgent in countries with emerging and developing economies, large gaps exist in even the most mature insurance markets with individual perils, all of which is detailed in the full report,” said Gallagher Re.