The research report, "Mutuals under the microscope as market share grows," was launched by A.M. Best at the International Cooperative and Mutual Insurance Federation (ICMIF) Biennial Conference in Toronto on Oct. 2.

Nick Charteris-Black, director of Global Financial Services at A.M. Best, said in a statement, "Mutuals are being presented with opportunities to exploit their values and build on customer loyalty during the continued economic uncertainty.

"However, they do also face a host of challenges and lack the financial flexibility of stock companies. For some mutuals, the future is uncertain."

The report is based on data from ICMIF and on in-depth analysis of mutual insurance companies within the Group of Seven countries (the leading industrialized nations) and in a number of other key countries.

It predicts some of the companies will be forced to merge and create partnerships in a bid to survive aggressive competition and regulatory pressures.

Yvette Essen, report author and head of market analysis, Global Financial Services at A.M. Best, said, "These challenges are expected to drive consolidation and partnerships around the world, particularly among smaller mutuals looking to share central resources. While the bigger mutuals may have the budgets and time to promote their values, the smaller, regional players may simply not be able to survive."

The report cited introduction of Europe's Solvency II directive as one of the factors likely to drive consolidation among mutual insurance companies.

Ms. Essen said, "Smaller mutuals will struggle to cope with the increased workload and capital requirements. The challenge associated with complying with Solvency II in some cases represents an even greater hurdle than the current recession."

A copy of the report is available at: www.ambest.com.