Mutual life insurance companies fared better than their stockholder-owned counterparts in the recent economic tumult, according to a report from Moody's Investors Service.
Mutuals benefited from stronger capitalization, a less-risky business model and fewer disclosure obligations, according to the report titled “Revenge of the Mutuals.”
Additionally, mutuals were subject to fewer downgrades than stock companies, wrote Arthur Fliegelman, vice president and senior credit officer of the New York-based ratings firm.
In terms of product risk, mutual carriers tend to focus on protection products, such as life insurance, which tend to stay in force for lengthy periods and aren't prone to the capital strains that come with equity market fluctuations.
Additionally, many mutuals sell participating, or
dividend-paying insurance products, which are less risky to the carrier than products with rich guarantees, according to the report.
On the other hand, stock insurers have focused on annuities — especially variable annuities that offer higher growth rates than plain-vanilla protection products, along with aggressive guarantees, Moody's noted.
Many major VA insurers have faced pressure from the difficult equities market.
But even among those mutuals that handle large amounts of VA business, such as TIAA-CREF, the guarantees aren't as aggressive as the offerings of stock carriers, Moody's noted.
Last year, New York-based TIAA-CREF held the most VA assets: $322 billion, or 28.6% of the market share, according to the ratings agency.
Stock-based carriers
MetLife Inc. of New York and Hartford Life Insurance Co. of Simsbury, Conn., followed in second and third place, with $79 billion and $75 billion in VA assets, respectively.
Moody's also noted that though mutuals don't make public their financial reports with the same level of detail that their stock counterparts do, the lack of transparency makes the mutuals less vulnerable to bad press.
Their stock counterparts, on the other hand, have suffered from publicity about unrealized losses and other-than-temporary impairments in their investment portfolios.
Mutuals have also beaten their stock competitors on the ratings front. Just three carriers hold Moody's top insurer financial strength rating, Aaa, and all three are mutuals: TIAA-CREF Group, New York Life Group and Northwestern Mutual Group in Milwaukee.
