Adapt or become irrelevant, claims AM Best Special Report

European mutual insurers have reached a point where they must embrace change or face possible irrelevance in the market, claims AM Best in a new report.

The report looks at the strategic considerations faced by European mutual insurers, including consolidation, governance, recognition of the need to innovate and capital optimisation.

Ghislain Le Cam, associate director and co-author of the report, said: “Mutual insurers have historically proved to be resilient thanks to their solid links with affinity groups and member-based organisations.

“These durable bonds and the ethos to operate in the best interests of their policyholders have rewarded them with strong loyalty among their members and in most instances, a high degree of customer satisfaction.

“Inevitably, however, some mutuals are struggling to adapt. It will be these companies that could begin to demonstrate weaker fundamentals going forward, particularly if the low interest rate environment persists and as anticipated disruptive innovation occurs across the wider insurance space.”

The rating agency expects mutuals to carry on reporting relatively higher loss ratios than stock insurers. Carlos Wong-Fupuy, senior director in analytics, said: “In many instances, this reflects mutuals’ conservative approach to reserving, partially compensated for by lower expense ratios.

“This conservatism, together with the ethos of putting their members’ interests at the heart of their business models, generally imply a solid balance sheet strength for mutuals.”