Swiss Re report suggests a comeback for mutual despite challenges

The mutual insurance sector has undergone a modest recovery in recent years, but faces new challenges and must adapt to newer underwriting and distribution practices if it is continue, according to Swiss Re’s latest sigma report.

The report, ‘Mutual insurance in the 21st century: back to the future?’, highlights that mutual insurers’ share of global premiums has risen in the last few years, reversing the decline of earlier decades.

Specifically, mutual insurers’ share of the overall insurance market increased from 24 percent of direct premiums written in 2007 to just over 26 percent in 2014.

Despite the fact the share of market has increased modestly since 2007, the report states that it remains substantially below previous highs.

In particular, the share of global premiums of life mutual was 23 percent in 2016, much lower than levels of around 66 percent in the late 1980s and early 1990s, before what Swiss Re describes as a wave of demutualisations in a number of countries.

According to Swiss Re, the mutual insurance sector may still face challenges in the form of new risk-based capital requirements and tighter corporate governance standards, which could put it at a competitive disadvantage.

Swiss Re suggests mutuals will gain increased financial flexibility from novel capital-raising instruments, greater access to customised reinsurance and alternative risk-transfer solutions.

Furthermore, its suggests that mutual insurers must exploit digital technology, for example smart analytics and social media, which should allow mutual insurers to better serve the interests of their member-owners, while their ownership structure should enable mutuals to keep insurance affordable for some individuals and risks.

Kurt Karl, chief economist at Swiss Re, said: "That mutuals' relative premium performance did not reverse once economic growth resumed after the financial crisis, suggests a degree of permanence to the segment's recovery.

"Some mutual groups have expanded internationally in recent years, and new mutuals have been established in a number of markets, another indication of the segment's renewed popularity."