mutual insurers Life insurance Non life risk measures consumer focus

When reviewing the insurance literature, many arguments can be found to explain why stock insurance seems a more viable business form compared to mutual insurance due to a more adaptable ownership structure and governance practices. Nonetheless, despite several waves of demutualization in the past, mutuals still exist and even thrive in many insurance markets worldwide. Using insurer specific accounting data on a set of 7,444 mutual as well as stock insurers, this paper[1] explores financial as well as operational insurer characteristics in search of answers to the question “Why do mutuals still exist?”. Our results provide further evidence that a structural difference in business models and consumer focus between both organizational forms might be the key to answering this question.


The insurance market today is characterized by the coexistence of two dominant organizational forms, being the customer-owned mutual insurer and the investor-owned stock form. Although there is much evidence on how both forms differ structurally, there are no signs that these differences lead to the demise of either form (MacMinn & Ren, 2011). Nonetheless, the insurance industry has been characterized by several waves of organizational conversions where mutual insurance organizations change to a stock charter (i.e., demutualization) in previous decades (Viswanathan, 2006). Several theories have been proposed in an attempt to explain the reasons why mutuals opt to change their legal form. Studies have put forward demutualization motives related to mutuals’ apparent disadvantages with regard to access to capital (Butler et al., 2000; Viswanathan & Cummins, 2003), operational efficiency (Erhemjamts & Leverty, 2010; Wang & Ligon, 2009), wealth expropriation (Carson et al., 1998), the regulatory framework (Zanjani, 2007) among others[2]. Nonetheless, the problem is that none of these theories provide a good explanation as to why so many mutuals do not convert (MacMinn & Ren, 2011).

Apart from theories that attempt to explain the demutualization process, there is a string of literature that tries to explore theoretically as well as empirically the consequences of the major differences between stock and mutual insurance organizations[3]. The three main hypotheses from this literature are the managerial discretion hypothesis, the maturity hypothesis, and the expense preference hypothesis (Cummins et al., 1999; Chen et al., 2013). These hypotheses borrow from agency theory and start from the premise that in a mutual organization there is no separation between the owners (i.e., shareholders) and the policyholders (i.e., customers). On the one hand, this customer-ownership combination leads to an elimination of the owner-policyholder conflict that is present in stock insurers where shareholders might try to expropriate value from the policyholders. On the other hand, this inseparability of ownership claims and insurance policies in mutuals can create agency problems between policyholders and managers (Mayers & Smith, 1986). As owners of a mutual insurance organization cannot sell their share in the firm at market value, it is much harder to discipline managers (Fama & Jensen, 1983). Furthermore, while theoretically the members of a mutual insurer have the opportunity to control the management by using their voting rights, there is evidence that only a very small number of owners is actually involved in the voting process of mutual insurers (Greene & Johnson, 1980). Finally, there is no market mechanism to discipline managers in a mutual organization as there is no external takeover threat (Mayers & Smith, 1981). This all leads to a governance process in a mutual insurance organization that is arguably much less effective compared to that of a stock insurer. In other words, the advantage of an eliminated owner-policyholder conflict comes at the cost of a worsened owner-manager conflict. The hypothesized consequences of these conflict differences can be summarized in Table 1 below.

Table 1: Agency bases hypotheses of mutual insurance

06 BFWD 2024 6 Table 1

While the theoretical value of these agency hypotheses is overall supported, the empirical evidence is mixed (for a thorough overview see Talonen, 2016). However, despite the number of papers attempting to describe differences between mutual and stock insurance organizations, no single overarching theory has been developed that succeeds at providing a full answer, leaving the question “why mutuals still exist?” open for debate (MacMinn & Ren, 2011). Knowing that insurance companies contribute greatly to the financial stability and economic development of a country, not only by offering protection against potential risks and losses but also by providing funding as institutional investors, this debate becomes all the more important. Especially as, within the insurance industry, mutual insurance cannot be considered a marginal phenomenon with a global market share of 26,3% predominantly in large and well developed insurance markets like France (54.8%), Germany (46.5%), US (41.8%) and Japan (38.9%) (ICMIF, 2024). For Belgium in particular the mutual form is somewhat less important, representing a stable yet moderate market share of 15.5% and 17.7% in the Life and Non-life insurance type respectively (AMICE, 2018).

In the next section, we empirically explore differences in insurer characteristics between mutual and stock insurance organizations (life and non-life) to provide some additional evidence on why mutual insurers are not necessarily less effective compared to their stock counterparts regardless of the apparent disadvantages facing that organizational form.

Empirical overview

To provide a concise empirical overview of some financial/operational differences between mutual and stock insurance organizations, we selected a sample of 7,444 insurance organizations from 64 different countries worldwide using accounting data from the Bureau van Dijk Orbis InsuranceFocus database over a 10 year period (i.e., 2010-2020). We select insurers that are organized as mutual or stock insurers and insurers that are active in either the life or non-life industry[4]. An overview of the distribution of the sample into these categories is provided in Table 2. Overall, the percentage of mutuals in the sample—somewhat underrepresented due to data availability—is 13.94% evenly distribited between life (12.82% mutuals) and non-life (14.35% mutuals) insurers. The amount of non-life insurers outweighs the amount of life insurers as they make up 73.50% of the total sample.

Table 2: Distribution of firms

06 BFWD 2024 6 Table 2

General characteristics

Using this global sample, we will look at two major sets of variables with on the one hand a set of general characteristics and on the other hand several risk measures. We compare the means and medians between mutual and stock insurers per insurance business type (i.e., life and non-life). The definitions for all of the variables that are used can be found in Table A1 in the appendix[5]. Figure 2 presents the relative difference between mutual and stock insurers for the set of general characteristics in both the life and non-life insurance subsamples. A value above 1 (dotted line) would indicates a higher median measure for mutuals on that particular dimension.

One of the primary characteristics we consider is the size of insurance organizations. We use two distinct ways to measure size, one based on the amount of total assets and one on the total gross premiums written by the insurer (both using the natural logarithm). It immediately stands out that while mutual insurers are relatively larger when considering the amount of total assets (in line with Greene & Segal, 2004), stock insurers write on average more premiums. This already provides some evidence that on average mutuals tend to tread more carefully in terms of the amount of assets they hold relative to the amount of insurance contracts they write. A result that is in line with Harrington and Niehaus (2002) who show that mutual insurers are characterized by relatively higher capital ratios. Furthermore, the growth ratio (based on premiums written) of stock insurers is significantly larger compared to that of mutuals both in life and non-life subsamples, in line with the reasoning above.

Figure 1: General characteristics of mutuals relative to stocks

06 BFWD 2024 6 Fig 1

While mutuals appear to have a significantly higher loss ratio (i.e., claims over premiums) in our sample, this difference is much smaller for the subsample of non-life insurers. In other words, especially mutual life insurers pay relatively higher claims compared to the net premiums earned. Given that the main goal of mutual insurers is usually defined as benefits and value maximization for its customer-owners (Byrne et al., 2015; Talonen et al., 2020), this relatively more generous claim settlement to policyholders is not unexpected. Next, for both ROA and Sd_roa (mainly life insurance) mutuals have a significantly lower value (strongly below 1) compared to stocks. This suggests that stock insurers, while being more profitable on the one hand, reach this profitability by employing strategies with a higher income variation (and thus risk).

Finally, with regard to the relative capitalization of mutuals compared to stocks an interesting result emerges from Figure 1. Mutual life insurers in particular report a lower median for the equity over assets ratio (EA) compared to their stock counterparts, suggesting a relative undercapitalization. This might be an indication that mutuals need less capital buffers to reassure policyholders in longtail (i.e., life insurance) contracts in the absence of an owner-policyholder conflict. However, it must be noted that stock life insurers experience way more income uncertainty (i.e., Sd_roa) warranting higher capital buffers. The subsample of the non-life insurers on the other hand, does seem to be relatively more capitalized compared to their stock counterparts. In other words, primarily mutuals in the property and casualty insurance (i.e., non-life) seem to play it safer compared to stock insurers, but this safety might be reached at the expense of operational and financial performance (e.g., efficiency and profitability).

Risk measures

To further explore whether mutual insurers can indeed be considered as ‘safer’, we include more elaborate risk measures that are commonly used in the insurance literature as a proxy for financial health like the distance to default (i.e., financial soundness) and the standard deviation of the aforementioned loss ratio (i.e., loss risk). The financial soundness variable is defined as the Z-score and measured by dividing the sum of ROA and capitalization (EA) over the standard deviation of ROA (all measured using a three-year rolling window). The main advantage of using this Z-score as a measure of financial health in the context of different organizational models is the multidimensionality. A high-risk high-reward strategy for example, can be considered equally sound to a low-risk low-reward strategy (Cihák & Hesse, 2010), which is necessary to account for the potentially fundamental differences between mutual and stock insurers. Furthermore, this Z-score can also be split into its (Rap) risk-adjusted profitability (ROA over Sd_roa) and the (Rac) risk-adjusted capitalization (EA over Sd_roa) components to assess whether the resulting financial soundness is due to income stability, capital structure or both. For all three variables, we use the natural logarithm to control for the high kurtosis. Finally, the standard deviation of the loss ratio (Loss_risk) in a certain year is calculated using the three most recent loss ratio measures and can be linked to the riskiness of the business model (Lamm-Tennant & Starks, 1993).

Figure 2 reports the relative differences in the medians of these risk measures between mutual and stock insurers in their respective insurer business types of life versus non-life insurance. Our results for soundness (LnZ) show that mutuals have a significantly higher distance to default compared to stocks regardless of insurance type. When looking at the two components of this financial soundness measure separately, we note however that for mutuals the risk-adjusted profitability (Ln_Rap) is lower in both life and non-life insurance while the risk-adjusted capitalization (Ln_Rac) is significantly higher even in the life insurance subsample. This seems to contradict the apparent undercapitalization of life insurance mutuals in Figure 1 but is probably due to the very low income uncertainty (Sd_roa) these mutuals face.

Figure 2: Risk measures of mutuals relative to stocks

06 BFWD 2024 6 Fig 2

Figure 2 reinforces our findings in the previous section about cautious conduct and might indicate that mutuals tend to be “too safe” in terms of risk taking and capitalization compared to stocks at the expense of other business dimensions such as profitability. It should indeed be noted that while stock insurers seem to perform worse in terms of the Z-score, their average distance to default is still very high making them also relatively financially sound.

Next to the three soundness related measures, the loss risk is also significantly lower for mutual life insurers compared to stocks as well, providing additional evidence for their safety. Given that mutual life insurers have a much higher loss ratio compared to stocks (as reported in Figure 1), we can thus conclude that while mutual life insurers pay relatively higher claims (compared to the net premiums earned), there is less variation within these claims leading them to be more consistent (and thus ‘safer’). However, for mutual non-life insurers the picture is somewhat more nuanced. Although the loss ratio is already slightly higher compared to their stock counterparts in the non-life insurance industry, the variability of this ratio is considerably higher. Together with the low (risk adjusted) profitability compared to stocks, this further indicates possible suboptimal cost-efficiency compared to stock insurers as expected from the expense preference hypothesis in Table 1. For the mutual life insurers on the other hand, results are mainly consistent with the maturity hypothesis that mutuals are expected to thrive mainly in the longtail life insurance business model.


There are many papers addressing the apparent financial and/or governance disadvantages of the mutual insurance organizational form or the inevitably resulting demutualization process because of it. But as these studies tend to provide theoretical expectations that do not always match the empirical evidence, there is still no conclusive answer to the question “why mutual insurers still exist?” (MacMinn & Ren, 2011). In any case, due to their member/customer ownership and less effective governance mechanisms, mutual insurers are considered more conservative or even cautious compared to their investor-owned counterpart (Talonen, 2016). This paper offers a summarized empirical overview of some important differences in financial characteristics between mutual and stock insurance organizations. Since mutuals are expected to suffer from restricted access to capital markets and poor governance, this should be evidenced by their capital structure, profitability and/or risk taking. On the one hand, the empirical results show that on average mutual insurers are indeed less capital efficient, have a lower growth ratio, a higher loss ratio, and are less profitable. However, while these results paint a rather grim picture of the mutual insurance business model, we then show that mutuals have a fundamentally different business model compared to their stock counterparts. While mutual insurance organizations have a lower risk-adjusted profitability compared to stock insurers, this is completely offset by a higher risk-adjusted capitalization. Moreover, after combining risk adjusted profitability and capitalization in an overall distance to default measure, the mutual insurance organizations in our sample appear significantly more financially sound compared to their stock counterparts both in life and non-life business types. Our results further amplify the importance of multidimensionality in our financial soundness measure. In other words, we provide further evidence that mutual insurers might follow fundamentally different business strategies (low-risk low-reward) compared to stocks.

Together with the result on the loss ratio that is higher but more stable for life mutual insurers, one might even get the impression that mutual and stock insurance organizations operate in a profoundly different way. Maybe the focus of these policyholder-owned insurers is not to maximize profitability aimed at shareholder value in the traditional sense. Given the absence of the shareholder-policyholder conflict, mutuals are deemed to be more customer oriented. Mutual insurance organizations are sometimes formed to provide solutions for a lack of market-driven options due to risks that are hard to commercialize and thus not necessarily follow the traditional investor-based logic (e.g., Johnstad, 2000; Pearson, 2002). Furthermore while mutual insurance organizations have a less efficient governance structure relative to stocks (e.g., Mayers & Smith, 1981), this might be irrelevant as even in more commercial mutuals the policyholders do not look at their involvement as an investment. Mutual insurers do not aim for return on investment, but value for the policyholder (Byrne et al., 2015; Talonen et al., 2020). For example, our results suggest that despite being ‘safer’, mutuals still have a higher loss ratio suggesting they do not save on the claims paid out to the policyholders. A strategy that might well attract the interest of individuals or companies looking for specific tailor-made financial protection against all sorts of risks. This focus on consumer value over investor wealth is probably one of the main answers to the question “why do mutual insurers still exist?”.


[1] Article is based on insights from Benjamin Smet’s doctoral research project Onderzoeksportaal - How does co-operative governance influence organizational resilience in the face of regulation? (

[2] An overview of a number of these theories can be found in Viswanathan and Cummins (2003). Furthermore, Talonen (2016) provides an extensive overview of studies that look at insurance company conversions.

[3] There are three main literature reviews on the mutual/cooperative insurance form and its coexistence with stock insurers that could be consulted for a more thorough overview of the existing literature. O’Sullivan (1998) studies the coexistence of both forms from a corporate governance perspective, while Macminn and Ren (2011) go further in their analysis and take into account agency issues, differences in efficiency and the causes of conversion between both organizational forms. Talonen (2016) focuses less on the coexistence of mutual and stock insurers, but more on the specificities of the primary organizational form itself.

[4] In other words, composite insurance organizations are excluded from the sample.

[5] All variables that are presented in Tables A2 and A3 are winsorized at the 1st and 99th percentile to account for potential outliers. Means and median differences are tested using t-test and Wilcoxon-tests respectively.


Table A1: Variable definitions

06 BFWD 2024 6 Table A1

Table A2: Univariate statistics - General characteristics

06 BFWD 2024 6 Table A2

Table A3: Univariate statistics – Risk measures

06 BFWD 2024 6 Table A3


AMICE (2018) Facts and figures Mutual and cooperative insurance in Europe Vol2 Excerpt Belgium:

Butler, R. J., Cui, Y., & Whitman, A. (2000). Insurers’ Demutualization Decisions. Risk Management and Insurance Review, 3(2), 135–154.

Byrne, N., Heinonen, K., & Jussila, I. (2015). The Role of Proximity in Value Preferences: A Study of Consumer Co-Operatives. Annals of Public and Cooperative Economics, 86(2), 339–361.

Carson, J. M., Forster, M. D., & McNamara, M. J. (1998). Changes in Ownership Structure: Theory and Evidence from Life Insurer Demutualizations. Journal of Insurance Issues, 21(1), 1–22.

Chen, L., Eckles, D. L., & Pottier, S. W. (2013). Ownership form and efficiency: The coexistence of stock and mutual life insurers. The Journal of Insurance Issues, 121-148.

Cihák, M., & Hesse, H. (2010). Islamic Banks and Financial Stability: An Empirical Analysis. Journal of Financial Services Research; Dordrecht, 38(2–3), 95–113.

Cummins, J. D., Rubio-Misas, M., & Zi, H. (2004). The effect of organizational structure on efficiency: Evidence from the Spanish insurance industry. Journal of Banking & Finance, 28(12), 3113–3150.

Cummins, J. D., Weiss, M. A., & Zi, H. (1999). Organizational Form and Efficiency: The Coexistence of Stock and Mutual Property-Liability Insurers. Management Science, 45(9), 1254–1269.

Erhemjamts, O., & Leverty, J. T. (2010). The Demise of the Mutual Organizational Form: An Investigation of the Life Insurance Industry. Journal of Money, Credit and Banking, 42(6), 1011–1036.

Fama, E. F., & Jensen, M. C. (1983). Agency Problems and Residual Claims Corporations and Private Property. Journal of Law & Economics, 26(2), 327–350.

Greene, M. R., & Johnson, R. E. (1980). Stocks vs Mutuals: Who Controls? The Journal of Risk and Insurance, 47(1), 165–174.

Greene, W. H., & Segal, D. (2004). Profitability and Efficiency in the U.S. Life Insurance Industry. Journal of Productivity Analysis, 21(3), 229–247.

Harrington, S. E., & Niehaus, G. (2002). Capital Structure Decisions in the Insurance Industry: Stocks versus Mutuals. Journal of Financial Services Research, 21, 145–163.

ICMIF (2024) Global Mutual Market share:

Johnstad, T. (2000). Mutual Maritime Insurance Clubs – Co-operation and Competition. Annals of Public and Cooperative Economics, 71(4), 525–555.

Lamm-Tennant, J., & Starks, L. T. (1993). Stock Versus Mutual Ownership Structures: The Risk Implications. The Journal of Business, 66(1), 29–46. JSTOR.

Laux, C., & Muermann, A. (2010). Financing risk transfer under governance problems: Mutual versus stock insurers. Journal of Financial Intermediation, 19(3), 333–354.

MacMinn, R., & Ren, Y. (2011). Mutual versus Stock Insurers: A Synthesis of the Theoretical and Empirical Research. Journal of Insurance Issues, 34(2), 101–111.

Mayers, D., & Smith, C. W. (1981). Contractual Provisions, Organizational Structure, and Conflict Control in Insurance Markets. The Journal of Business, 54(3), 407–434. JSTOR.

Mayers, D., & Smith, C. W. (1986). Ownership structure and control: The mutualization of stock life insurance companies. Journal of Financial Economics, 16(1), 73–98.

O'Sullivan, N. (1998). Ownership and governance in the insurance industry: A review of the theory and evidence. Service Industries Journal, 18(4), 145-161.

Pearson, R. (2002). Mutuality Tested: The Rise and Fall of Mutual Fire Insurance Offices in Eighteenth-Century London. Business History, 44(4), 1–28.

Talonen, A. (2016). Systematic literature review of research on mutual insurance companies. Journal of Co-Operative Organization and Management, 4(2), 53–65.

Talonen, A., Talonen, H., Stenvall, J., & Jussila, I. (2020). Communicating the economic value of customer ownership in insurance: A qualitative analysis of annual reports. Risk Management and Insurance Review, 23(3), 243–267.

Viswanathan, K. S. (2006). The Pricing of Insurer Demutualization Initial Public Offerings. Journal of Risk and Insurance, 73(3), 439–468.

Viswanathan, K. S., & Cummins, J. D. (2003). Ownership Structure Changes in the Insurance Industry: An Analysis of Demutualization. Journal of Risk and Insurance, 70(3), 401–437.

Wang, Q., & Ligon, J. A. (2009). The Underpricing of Insurance IPOs. Financial Management, 38(2), 301–322.

Zanjani, G. (2007). Regulation, Capital, and the Evolution of Organizational Form in US Life Insurance. American Economic Review, 97(3), 973–983.


06 BFWD 2024 6 Frederiek Schoubben
06 BFWD 2024 6 Cynthia Van Hulle
06 BFWD 2024 6 Benjamin Smet

Dr. Frederiek Schoubben

Associate Professor of Finance, KU Leuven

Dr. Cynthia Van Hulle

Emeritus Professor of Finance (with formal duties), KU Leuven

Benjamin Smet

Doctoral Researcher, Financial management, KU Leuven