Summary
First and foremost the mutuals do not have the market pressure of the publicly traded insurance carriers. Second the have, by and large, strong risk based capital (RBC) ratios. Finally with career or tied advisors they can weather the storm because the advisors will stay loyal. w
Analysis
The rating agencies seem to be over reaching with their latest round of downgrades. Mutuals are traditionally more conservative in the deployment of their capital then their publicly traded counter parts.
The basic make up of mutuals is that they are in existence for the benefit of the policyholders first and foremost. They focus on the performance of the underlining products first and returns second. They have a tendency to hold excess risk based capital ratios then many ( but not all of their public traded competitors).
The rating agencies after the fact are now become extra conservative in their analysis of the companies. Many of the companies have more than enough reserves to weather this current storm. Some do not and smaller under capitalized mutuals would be the ones to pay close attention to.
The financial advisor make up of many mutuals are tied agent based and because of this these companies should see three things happen. First they will sell new products that have price in this new volatility we are experiencing. Second the inforce policies should stay on the books longer verse and independent distribution model. Finally they will not see mass defections in the sales force because the advisors are tied to company.
In conclusion it seems that yes, the Rating agencies are over reaching with their assesment of the mutuals. The will be similar portfolio issues to their publicly traded counterparts but the market pressure will not be the same making it easier to weather this storm.
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
