The ratings for the midsize mutual peer group have continued to be supported by higher levels of capital relative to the broader life industry, reflecting the unique characteristics of mutual ownership, according to Fitch Ratings’ latest peer review of the sector.
Compared with stock companies, these mutual insurers generally have a longer-term focus on sustainable returns, while maintaining excess capital, compared with target levels and rating expectations.
The financial performance metrics among this peer group tend to be muted relative to the broader industry as a result of the insurers’ elevated levels of capital.
However, Fitch has weighed the financial performance less heavily for this peer group, with the exception of Mutual of America Life Insurance Company, where financial performance carries a high weight.
In the recent years there has been persistently low interest rates which continue to pressure this peer group and the broader industry.
In several cases, companies have chosen to exit or reduce sales of interest-sensitive products and increase focus on protection and other capital-light businesses.
Affected product lines include variable annuities with guaranteed living benefits and guaranteed universal life insurance.
According to the rating agency, financial leverage among the group tends to be lower than the broader industry, with the exception of Ohio National Financial Services, which reports a financial leverage ratio in line with the broader life industry.
Despite this, a number others in this peer group took advantage of favourable capital markets in recent years to issue senior unsecured or surplus notes.
While adverse investment and mortality experience had an impact on this peer group relative to historical trends, the overall exposure to COVID-19 and the economic fallout is viewed as manageable in the context of balance sheets.
Unfavourable mortality experience is partially mitigated by offsetting risks, namely longevity, while investment risks largely moderated with the broader economic recovery.
