The National Association of Mutual Insurers (NAMIC) held its 2023 Annual Convention on September 17-20 in National Harbor, Maryland. During the convention, AAIS sat down with Brian O’Larte, Director of Ratings Analytics at AM Best, and Lauren Magro, Financial Analyst at AM Best, to discuss CAT losses and reinsurance, the importance of company size in the mutual market, strategies to address the market, rating implications for mutuals, and more.

CAT Losses and Reinsurance

O’Larte acknowledged that property writers were severely affected by both reinsurance costs and CAT losses this year. “At points, there was a 40-50 percent increase in reinsurance costs and CAT losses were one of the worst in history,” he stated. Those were two major impacts on mutual companies, which caused reinsurers’ participation to drop off. “So, a lot of the mutuals have had to take a higher retention or co-participate in upper layers,” O’Larte shared.

Importance of Company Size in the Mutual Market

Magro believes that the size of a mutual company can drive certain results overall, but there are advantages and disadvantages to both “With some smaller companies, we generally see that underwriting expenses may be a bit higher than some of those larger companies,” she said. “But that's offset by [the fact that] they may write in a niche or specialized market where they know the risk very well, allowing them to produce lower loss ratios.” On the other side, larger companies may hold more robust investment portfolios and may get better returns on it as opposed to smaller companies. “But that may be offset by higher losses,” said Magro.

Strategies to Address a Difficult Market

The number one strategy O’Larte suggests for mutuals to address the difficult market is getting the right rate for the exposure. “We're seeing a lot of companies getting sizable rates throughout the year,” he shared. Another option O’Larte recommends is for mutuals to push away some of the property exposures and delve into more liability lines.

Rating Implications for Mutuals

Overall, the financial strength of the mutual segment has remained strong, according to Magro. “We haven't really seen much of a divergence from where we were last year from a ratings perspective,” she explained. “However, we have seen a bit of an increase in negative outlooks, with an increase of about five or six percent from the prior year.” While there haven’t been large trends that signify any major negative rating implications at this time, Magro urges mutuals to keep monitoring and see how it develops and continues to progress.

To view the full interview with Brian O’Larte and Lauren Magro, please click the video above.