Mutual vs. S🍌tock Insurance Companies: An Overview

Insurance companies are cꦑlassified as either stock or mutual depending on the ownership structure of the organization. There are also some exceptions, such as Blue Cross/Blue Shield and fraternal groups which have yet a different structure.

Still, stock an🅰d mutual companies are by far the most prevalent ways that insurance companie♏s organize themselves.

Worldwide, there are more mutual🦂 insurance companies, but in the 🗹U.S., stock insurance companies outnumber mutual insurers.

When selecting an insurance company, you should consider s🎉everal factors including:

• Is the company stock or mutual?
• What are the company’s ratings from independent agencies such as Moody’s, A.M. Best, or Fitch?
• Is the company’s surplus growing, and does it have enough capital to be competitive?
• What is the company's premium persistency? (This is a measure of how many policyholders renew their coverage, which is an indication of customer satisfaction with the company’s service and products.)

Learn how stock and 🃏mutual insurance companies differ and which type to consider when purchasing a policy.

Stock Insurance Companies

A 澳洲幸运5官方开奖结果体彩网:stock insurance company is a corporationꦯ owned by its stockholders or shareholders, and its objective is to make a profit for them. It can be a privately-held company or a public company. Policyholders do not share directly in the profits or losses of the company. 

Corporate Requirements

To operate as a stock corporation, an insurer must have a certain minimum of capital and surplus on hand before receiving approval from state regulators. Other requirements (such as an exchange's 澳洲幸运5官方开奖结果体彩网:listing requirements) must also be met ifಌ the company's sha💎res are to be publicly traded.

Should it need capital for growth purposes or in cases of financial difficulty, a stock insurance company can ra💛ise it in the equity markets by selling additional shares.

Some well-known American stock insurers include Alls𝓀tate, MetLife, and Pr꧒udential.

Mutual Insurance Companies

The idea of 澳洲幸运5官方开奖结果体彩网:mutual insurance dates back to the 1600s in England. The first successful mutual insurance company in the U.S.—the Philadelphia Contributionship for the Insurance of Houses from Loss by Fi🐠re—was founded in 1752 by Benjamin Franklin and is still in business today.

Mutual companies are often formed to meet an unfilled or unique 🐲need for insurance. They range in size from small local providers to national and int🤡ernational insurers.

Some mutual companies offer multiple lines of coverage including property and casualty, life, and health, while others focus on specialized markets. Five of the largest 澳洲幸运5官方开奖结果体彩网:property and casualty insurersℱ that make up about 25% of the U.S. ma﷽rket are mutual insurance companies.

Ownership by Policyholders

A mutual insurance company is a corporation owned exclusively by the policyholders who are "contractual creditors" with a right to vote on the board of directors. Generally, companies are managed and assets (insurance reserves, surplus, contingency funds, dividends) are held for the benefit and protection of the policyholders and their beneficiaries.

Management and the board of directors determine the amount of operating income that is paid out each year as a dividend to the policyholders. While not guaranteed, some companies have paid a dividend every year, even in difficult economic times.

Large mutual insurers in the U.S. include Northwestern Mutual, Guardian Life,🍌 Penn Mutual, and Mutual of Omah🗹a.

Key Differences

Like stock companies, mutual companies have to abide by state insurance regulations and are covered by state guaranty funds in the event of insolvency. 

Mutual Insurer❀s Serve Policyholders, Not Shareholders

However, many people feel mutual insuꦜrers🐽 are a better choice since the company’s priority is to serve the policyholders who own the company.

With a mutual insurance company, they feel there i🔯s no conflict between the short-term financial demands of investors and the long-term interests of policyholde🎀rs. 

With a stock insurance company, shareholders can be prioritized over policyholders and short-te𒅌rm finan🀅cial performance can become a focus.

Policyholder Voting Rights

While mutual insurance policyholders have the right to vote on the company’s management (while stock insurer policyholders do not), many don’t, and the average policyholder really doesn’t know what makes sense for the company. Mutual insurance company policyholders also have less influence than 澳洲幸运5官方开奖结果体彩网:institutional investors, who can accumulate significa༒nt owner🍰ship in a company.

S☂ometimes pressure from investors can be a good thing, forcing management to justify expenses, make changes, and maintain a competitive position in the maܫrket.

The Boston Globe newspaper has run illuminating investigations questioning💛 executive compensation and spending practices at Mass Mutual and Liberty Mutual. It has shown the excesses that occur at mutual companies.

Ways to Raise Capital

Once established, a mutual insurance company 澳洲幸运5官方开奖结果体彩网:raises capital by issuing debt ꦕor borrowing fꦕrom policyholders. The debt must be repaid from operating profits.

Operating profits are also needed to help finance futu💞re growth, maintain a reserve against future liabilities, offset rates or premiums, and maintain industry ratings, among other needs.

Stock companies have more flexibilit🍸y and greater access to capita🌱l. They can raise money by selling debt and issuing additional shares of stock.

Demutualization

Many mutual insurers, including MetLife and Prudential, have 澳洲幸运5官方开奖结果体彩网:demutualized over the years. Demutualization is the process by which poꦉlicyholders became stockholders and the company’s shares begin trading on a public stock exchange.

By becoming a stock company, insurers are able to unlock value and access capital. As a result, they can achieve more rapid grꦗowth by expanding their domestic and international markets.

The Bottom Line

Investors are concerned with profits and dividends. Customers are concerned with cost, service, and coverage. The perfect insurance company model would be one that could meet both sets of needs. Unfortunꦉately, that company does not exist.

Some companies promot💫e the benefits of owning a policy with a mutual insurer, a🥂nd others focus on the cost of coverage and how you can save money. One possible way to deal with this dilemma is based on the kind of insurance you are buying.

Policies that renew annually, such as auto or homeowner’s insurance, are easy to switch between companies if you become unhappy, so a stock ꦦinsurance company may make sense for such coverage.

For the longer-term coverage of life, disability, or 澳洲幸运5官方开奖结果体彩网:long-term care insurance, you may w♔ant to select a more service-oriented company, which most likely wo🦂uld be a mutual insurance company.