Mutual insurers look poised to pounce on their publicly held peers' market share, but industry ob-servers warn that these carriers face the same problems as their stock company brethren.
“For the publicly traded companies, there is a general downward ratings trend because of the decline in equity based on performance,” said Steve Irwin, a vice president at A.M. Best Co. in Oldwick, N.J. “In many cases, mutuals invest in similar types of securities, with some notable exceptions.”
Sliding share prices, requests for federal aid through the Department of the Treasury's Troubled Asset Relief Program and public ratings downgrades have all been a factor in financial advisers' and agents' declining interest in the major public carriers. Those issues also play a role when advisers and agents decide to turn new business toward an insurer that appears stronger in terms of ratings than one that has been bashed by the economy.
“There are companies I won't write with today because of their financials. I have put all my [American International Group Inc. of New York] marketing materials in the recycling bin,” said Mitchell Dannenberg, an independent broker at LTCi Marketplace in Miramar Lakes, Fla.
“I can't walk into a client's home, invite them to a meeting and tell them we have to choose between Mutual of Omaha (Neb.) [Insurance Co.] and AIG,” he said. “I'd lose all credibility to bring up AIG because the public perception is that they're on the edge of being criminal.”
Enter the mutuals, with the three biggest carriers — New York Life Insurance Co., Massachusetts Mutual Life Insurance Co. of Springfield and Northwestern Mutual Life Insurance Co. of Milwaukee — boasting top-notch ratings from the major agencies. Although the migration toward mutuals isn't a deliberate attempt to shun the public companies, a combination of strong ratings and competitive pricing in certain situations seems to be tipping the scales toward the private companies.
Generally, ratings agencies have been kinder to the major mutuals than they have been to the stock insurers when it comes to doling out downgrades. For instance, New York Life has a financial strength rating of A++ from A.M. Best, while Hartford Life Insurance Co., the Simsbury, Conn.-based major life subsidiary of the variable annuity giant, The Hartford (Conn.) Financial Services Group Inc., has an A.
TAKING THEIR LUMPS
But better ratings can't obscure the fact that mutuals have taken their lumps on their investments, just like their publicly held cousins.
Last month, New York Life an-nounced a $949.7 million loss for 2008, due to writing down investments. That is down from a statutory net income of $1.14 billion in 2007.
Investments that carriers — including mutuals — select include real estate partnerships, limited partnerships, alternative investments and venture capital.
“Mutual and public companies have similar liability structures, and that's why the assets are similar,” said Andrew Edelsberg, vice president of the life and health division at A.M. Best.
The major difference, he said, is in the steps that mutuals can take to adjust dividends distributed to policyholders according to the company's profitability and experience inside of a given book of policies. Because public companies are unable to do this with their policies, mutuals are generally more creditworthy by comparison, Mr. Edelsberg said.
In the field, insurance wholesalers are seeing a movement to mutuals among agents and advisers. But advisers' perceptions of what makes a company safe has prompt-ed Jim Sorebo, president and chief executive of Four Seasons Financial Group in Mount Laurel, N.J., to host seminars for sales forces on the difference between stock and mutual carriers.
“Since the mutuals don't have to disclose investment information, as the stocks do, be it from the statutory accounting or [generally ac-cepted accounting principles] basis, it creates a perception that the mutuals are in better shape,” he said.
Nevertheless, it's hard to persuade agents and advisers that the mutuals aren't a better bet, particularly if there is a major policy sale involved and many professionals, such as attorneys and accountants, are on the case.
But at New York Long Term Care Brokers Ltd., a Clifton Park, N.Y., insurance brokerage firm, chief operating officer Peter Kelly said that there hasn't been a surge in demand for mutual companies' products compared with the stock insurance carriers. “If you restrict to mutuals, the selection of products is so limited that the consumer might find themselves cutting off their nose to spite their face,” he said.
Still, Mr. Kelly said, “[Mutuals] have interesting stories — one of value — and if the individual marketing a product and representing a company wants to leverage that attribute of the company, it's a story that that agent can tell that will be different from what the agents with the stock companies can tell.”
E-mail Darla Mercado at -dmercado@investmentnews.com.
