Mutual vs Stock Life Insurance Companies [Top Companies for Each]

Written by: Steven Gibbs | Last Updated on: May 28, 2024
Fact Checked by Jason Herring and Barry Brooksby (licensed insurance experts)

Insurance and Estates, a strategic life insurance provider composed of life insurance professionals, is committed to integrity in our editorial standards and transparency in how we receive compensation from our insurance partners.

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Understanding the difference between a stock insurance company and mutual insurance company and how these differences impact the policies they offer is crucial to making an educated purchase, particularly when you are looking into dividend paying whole life insurance.

While both stock insurance companies and mutual insurance companies typically offer similar life insurance policies and provisions, it is the ownership structure of mutual life insurance companies that puts these carriers in a unique position to take a different approach to managing their businesses and offering policy features that have some distinct advantages for policyowners.

Key Takeaways

    1. Ownership and Rights: Mutual insurance companies are owned by policyholders who have rights including dividends, participation in governance, and benefits in liquidation scenarios, while stock insurance companies are usually publicly traded and are owned by shareholders, prioritizing their interests.
    2. Dividends: Mutual insurance companies can distribute profits as dividends to policyholders or reduce future premiums, unlike stock companies where profits typically benefit shareholders.
    3. Management Focus: Mutual life insurers often prioritize long-term stability and policyholder interests, possibly leading to more conservative investment strategies compared to stock insurers that might take on more risk to satisfy shareholder demands for returns.
    4. Corporate Governance: Policyholders in mutual insurance companies can vote on company matters, influencing decisions and potentially leading to more frugal management practices compared to stock insurance companies, where policyholders have no such rights.
    5. Compensation Structures: Executives in a stock insurance company may receive compensation linked to stock performance, potentially encouraging riskier investments, unlike a mutual insurance company’s management, which may adopt a more conservative approach.
    6. Capital Raising: Stock insurance companies can raise funds by issuing stock, providing flexibility in financial strategies, while mutual insurers rely on debt issuance or policyholder borrowing, necessitating cautious investment approaches to ensure stability.
    7. Reorganizations and Demutualizations: Mutual insurance companies may reorganize or demutualize, changing the make up of the company.

Stock vs Mutual Life Insurance Companies

Mutual insurance companies, also known as “Mutuals”, have no shareholders. The policy owners are members of the mutual insurer which grants them membership rights.

The rights of a mutual insurance company policyholder include:

  • Contractual benefits, such as *dividends declared by the board of directors
  • Participation in corporate governance, typically by voting for the company’s directors
  • Receipt of any outstanding value in case of liquidation or demutualization of the corporation
  • Expectation that the corporation’s main objective will be to operate in the best interests of the policyholders
  • Ability to launch legal action against the company’s directors and officers if they violate their fiduciary duties

*Profits earned by a mutual insurance company must be either kept within the company or distributed to policyholders as dividend distributions or reductions to future premiums.

Stock Company Features

  • Stock life insurance companies, on the other hand, are usually publicly traded and are owned by their stockholders, who vote for the officers of the company, rather than by their policyholders.
  • The profits earned by a stock life insurer are either distributed to the company’s stockholders or invested back in the business.
  • There is no requirement that they be shared with policy owners.
  • These companies are managed for the benefit of their shareholders, although to stay competitive they must offer policies that are attractive to consumers.
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Mutual Company vs Stock Company

[Differences in Operating Approaches]

Historically, mutual life insurance companies have a record of being more apt to consider the long-term health of the business when it comes to making strategic decisions than stock life insurance companies.

This tendency likely stems from the difference in focus between the two types of insurers:

  • mutual insurers are managed solely for the benefit of their policyholders,
  • while stock insurers must consider the desires of their shareholders to make a profit along with the need to provide life insurance policies that attract interest from potential applicants.
  • Because of this, mutual insurers typically can set lower profit goals than stock insurers, given that they aren’t subject to pressure from outside investors to deliver high returns.

This long-term focus means a mutual insurance company usually takes a more conservative approach to investing their funds.

These mutuals differ from stock companies in that they don’t have the ability to raise funds by issuing stock in times of crisis. Thus, their investments need to be able to withstand market booms and busts, which requires a more slow and steady approach.

Stock insurance firms must report on their performance every quarter to their investors, which means their management needs to focus on shorter term performance to a greater degree than mutual life insurers.

Corporate Compensation

Additionally, unlike the management of mutual insurers, the management of stock life companies often receives a portion of their compensation in the form of stock options linked to the company’s stock price. This can cause them to take on more investment risk as a means of boosting the company’s stock price to enhance their compensation.

As stock life insurance companies management’s stock options typically vest, or come due, at different time periods, they are incentivized to maximize the company’s performance on what is often a shorter time horizon than that of policyholders, presenting a potential conflict of interest not found with mutual insurers.

Frugality

Given the difference in ownership structure between mutual vs stock companies, it should come as no surprise that studies have found that mutual insurers typically are more frugal than stock life insurers at running their businesses. This extends to the issue of management compensation, which is usually higher for stock insurers executives than for their opposite numbers at mutual insurers.

One factor driving this may be that qualifying policyholders at mutual companies get to vote for the corporation’s directors, while this is not the case at stock companies.

Mutual vs Stock Life Insurance Comparison Chart

Mutual Insurance Companies Stock Insurance Companies
Company is owned by its policy holders Company is publicly traded and owned by its stockholders
Policy holders have the right to vote on the company’s management Stockholders vote on the company’s Board of Directors and management team
Raise capital by issuing debt or borrowing from policy holders Raise capital by issuing more shares of stock
Pay dividends to policy holders (note that dividend payments are not guaranteed) Profits typically go to shareholders in the form of dividends and/or increased stock price
Invest in less risky assets with more of a long-term profit goal Invest in riskier assets with a focus on short-term profits for shareholders
Share the profits of the company with policy holders in the form of dividends and/or lower premiums on policies Share the profits with stockholders, oftentimes in the form of stock dividends

Dividend History of Mutual Insurance Companies

 
Life Insurance Dividend Rates
Company2014201520162017201820192020202120222023Ave
MassMutual7.17.17.16.76.46.46.26666.5
Penn Mutual Life Insurance Company6.346.346.346.346.346.16.15.755.755.756.12
New York Life Insurance Company66.26.26.36.166.15.85.85.86.03
Ohio National6665.755.45.45.24.7N/AN/A5.66*
The Guardian Life Insurance Company of America6.256.056.055.855.855.855.655.655.655.755.86
Northwestern Mutual5.65.65.4554.9555555.16
Lafayette Life5.25.25.25.25.25.25.25.25.25.25.2
Foresters Financial6.426.656.836.586.2365.85.255.8N/A6.17**
MetLife / Brighthouse5.255.154.74.74.74.7N/AN/AN/A4.86***
Ameritas5.255.255.1555554.754.64.64.96
Minnesota Life55.255554.834.63    
National Life Group5.755.755.755.755.255.254.54.25  
*Ohio National through 2021 when demutualized
**Foresters rates through dividend payment to policyholders of record in 2022
***MetLife / Brighthouse through 2020
 

Fraternal Life Insurance Companies

There are a select few fraternal life insurance companies as well. Fraternal companies typically focus on providing financial products to its members and member families, like group life insurance.

Members of Fraternal life insurance companies usually feel a greater connection to the community, then with stock or mutual companies.

The Top Mutual, Stock, and Fraternal Companies

We ranked the following top 10 mutual companies according to our current preferences. And the stock and fraternal life insurance companies are in order of  total assets. For a specific recommendation, please give us a call for a complimentary strategy session.

Top 10 Mutual Insurance Companies

(According to I&E)

  1. Penn Mutual
  2. Lafayette Life
  3. Massachusetts Mutual
  4. Security Mutual
  5. Guardian Life
  6. Northwestern Mutual
  7. New York Life
  8. OneAmerica
  9. Ameritas
  10. Mutual Trust

Top 10 Stock Life Insurance Companies

  1. Met Life
  2. TIAA
  3. Prudential
  4. John Hancock
  5. Lincoln National
  6. Jackson National
  7. AXA Equitable
  8. Principal Life
  9. Brighthouse Financial
  10. American General

Top 10 Fraternal Life Insurance Companies

  1. Thrivent Financial
  2. Knights of Columbus
  3. Modern Woodman of America
  4. Woodmen of the World
  5. GBU Financial Life
  6. Greek Catholic Union of USA
  7. Catholic Financial Life
  8. Gleaner Life Insurance Society
  9. Catholic Life Insurance
  10. Foresters Financial

Mutual Life Insurance Policies Compared to Stock Life Insurance Policies

Strong History of Dividend Payments

One of the advantages of life insurance from a mutual company is the strong history of dividend payments paid to policyholders by many of these organizations. As dividends are treated as a return of premium by the IRS, they are not taxable to the policyholders who receive them.

While life insurance dividend payments are not guaranteed, the most prominent U.S. mutual insurance companies have racked up admirable records of paying dividends year in and year out, with some of them having done so for more than 100 years without missing a single year of dividend payouts.

While participating stock insurance companies may pay dividends, they may also do so to their shareholders. These companies pay dividends out of their profits quarterly, which acts to reduce their average surpluses as a percentage of their total assets and liabilities.

Large Surpluses

Without the need to also return profits in the form of dividends to shareholders as well, mutual life insurers are typically able to build up larger surpluses considered in relation to total assets than stock insurers, helping support consistent dividend payments.

This strategy reflects the generational approach of mutual life insurers, who focus on managing their companies to enable them to provide coverage for multiple generations of policyholders.

Equitable Treatment for All Policies

Another advantage associated with life insurance policies sold by mutual insurers is that these firms are known for delivering similar treatment to their complete book of business, meaning that when payout rates are lowered due to falling interest rates, these companies typically lower them for older policies as well as for newer policies.

Stock insurers are not always known for being as equitable in their treatment of older life insurance products in similar situations.

Over time, the focus of mutual insurance companies on providing policyholders with equitable treatment has enabled them to offer cash value life insurance policies that, according to some experts, have provided more value for the dollar than the average policy issued by stock life insurance companies.

However, operating as a mutual insurer has some disadvantages, including:

  • Less flexibility in raising capital or merging with or acquiring other companies due to an inability to issue stock
  • Less flexibility in financial reporting due to the need to record all transactions on the books of the parent company
  • Less scrutiny of management performance due to the lack of outside investors in the corporation.

While these disadvantages may not be relevant to a policyholder, they can lead to a mutual insurer’s management deciding to reorganize the company to overcome some of these issues.

Reorganizations of Mutual Insurance Companies

How significant the disadvantages cited above truly are can be a matter of perception.

In addition to addressing the issues mentioned above, another reason cited as motivating such conversions is the potential for the company’s management to reap the greater financial rewards typically paid out to stock life insurance company leadership.

Depending on the type of conversion, reorganization can offer a potential financial benefit to policyholders, who gain shares in the insurer upon conversion to a stock format.

Reorganizations come in two types:

Type 1

The first type is a Full Demutualization.

A full demutualization is when a mutual insurer converts to a stock insurance company. An example of a more recent demutualization would be Ohio National. And probably the most well known in recent years would be MetLife.

The net worth of the mutual company, also known as its surplus, is typically distributed to its policyholders in the form of stock, cash, and policy enhancements.

The policyholders no longer have membership rights, but their insurance policy contractual rights remain in effect.

The company will often issue stock at the same time to raise capital to pay for the conversion and to provide it with working capital.

Type 2

The second type of reorganization is a Mutual holding company (MHC) conversion AKA a mutual insurance holding company (MIHC) conversion.

In this type of conversion, the mutual insurance company is converted to a stock insurance company that is fully owned by a mutual holding company.

Often a stock holding company will be placed between the mutual holding company and the insurance entity to offer the company greater flexibility.

Subsidiaries can be owned by the mutual holding company or the stock holding company, depending on their purpose.

Which is the Better Alternative?

Full demutualization is typically considered to be a better alternative for policyholders. Demutualization policyholders generally end up with stock in the insurer, or cash or policy enhancements of comparable value, in return for giving up their membership rights due to the conversion.

In a mutual holding company conversion, policy owners are typically granted subscription rights in the stock company subsidiary rather than outright shares. Thus, unless they pony up to invest in the newly created stock mutual holding company, they don’t benefit from the conversion to the same degree as they would in a full demutualization.

The occurrence of a reorganization is highly unpredictable, as a result the potential for demutualization of some sort should generally not be a primary factor in determining what type of life insurance policy to buy.

However, they do happen from time to time, so it is important to be aware of the possibility if you are purchasing a life insurance policy sold by a mutual life insurance company.

Conclusion

Choosing a life insurance policy can be complicated, given the many considerations involved. While policies sold by mutual insurers are similar in many ways to those sold by stock life insurance companies, as we have seen, there are certain benefits to buying policies from mutual insurers.

These benefits include the generally more conservative management and investing approach of such companies along with their ability to maximize policyholder’s dividends from the profits they earn.

Additionally, mutual insurers may be thought to be more likely to equitably treat all policyholders, such as in cases where falling interest rates result in reduced payout rates on the company’s entire policyholder roster.

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2 comments

  • Dora Sheppard
    Dora Sheppard

    I need a insulin policy that full coverage up front when I pay my first payment also in my policy I want compound interest life insurance

    • Insurance&Estates
      A
      Insurance&Estates

      Hi Dora,

      If you are interested in speaking about life insurance from a Mutual Insurance Company please speak with Barry Brooksby. You can reach Barry Brooksby at barry@insuranceandestates.com.

      Sincerely,

      I&E

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