As part of our thought leadership strategies, Peak Re aims to share insights with clients through our annual economic research publications – Peak Insights.
The coming edition of Peak Insights is dedicated to Mutuals and Cooperatives and Community based Organisations (MCCOs). Insurance at first comes from a mutual support against unforeseen event.
This concept of mutuality is not new to society and is a basis to build a stronger community to guard against poverty. When MCCOs established, they are initially non-profit organisations which have supported economic development and social stability. From that starting point, MCCOs have become major contributors to social stability and economic development and they have developed to become major market participants in the insurance industry.
Many of the MCCOs have long operating histories and they continue to gain popularity which highlights the solidarity and sustainability concepts behind it. Their rise in popularity was built around relevance and simplicity of purpose to members, long before the existence of a social welfare system. Today, while social welfare is common in developed countries, MCCOs still have a role to play as supplement to the system and to commercial insurers.
MCCOs’ reputation and proximity to members are strong reasons for their longevity and sustainability. As they help members in risk prevention and after an unforeseen events, MCCOs are viewed to be good corporate citizens. This attribute, in return, positively contributes to their reputation and market presence.
MCCOs are not only relevant to members, but also to employees. Size is a potential constraint to transparency between MCCOs and their members and employees. Hence, MCCOs need solutions to remain agile in addressing social and economic changes and adapting to regulatory trends. Good and effective governance is one of several ways to address this potential issue. It is essential to stay connected with relevant parties and to meet performance targets by generating income to build capital reserve, as MCCOs are subject to regulatory supervision just like their commercial peers.
Also, stringent capital requirements could lead MCCOs to search for external capital or contingent capital to meet financing requirements. Third party capital includes reinsurance capacity, subordinated debt and equity. Unlike their commercial peers, MCCOs have greater difficulty to issue subordinated debt and raise equity, due to the lack of permanent capital as they are member based mutual organisations. For those who are seeking capital, a proven track record of operating performance is some of the aspects that external investors would consider. Since governance is intended to safeguard the longevity of the organisations, therefore, good and effective governance is viewed as a means to attract external capital.
Although MCCOs are facing an increasingly challenging operating environment and stringent regulatory requirements, some of them in developed Europe and Asia have managed to stand out from the crowd. This report aims to understand how these MCCOs can remain sustainable and financially sound; and how they remain relevant to society while addressing regulatory requirements and potentially external investors. Our intention is to support their development as MCCOs have proved more suitable to meet specific needs in certain circumstances.
We hope this publication provides useful insights, in particular around the subject of MCCOs looking to preserve their mutual and cooperative status and for those aiming to introduce the model in new way or applications.
