The development of the mutuality principles in Austria

In the current literature, mutual associations are considered as a revitalised form of organisation in times of financial crises for the insurance sector. In contrast to stock companies, mutual associations pursue a long-term... [ view full abstract ]

In the current literature, mutual associations are considered as a revitalised form of organisation in times of financial crises for the insurance sector. In contrast to stock companies, mutual associations pursue a long-term orientation policy without the pressure to return their capital to shareholders. The reason is that the customers are members of the insurance company and the main goal is the fulfilment of the demand of risk coverage. In case of that it is argued that mutuals are more resilient to economic downturns and should coexist beside stock companies. This paper focuses on the mutuality principles – equal treatment of members, self-government and personal responsibility – and explores from a historical point of view the development of mutualism in the Austrian insurance sectors. An analysis of the current statutes of the residual mutual company shows a clear dilution of the mutualistic principles and contradicts a revitalisation of mutual insurance companies.

A crucial factor for these results was a legal amendment in the early 1990s which created a worldwide unique legal hybrid form of stock and mutual companies – the Mutual Holding Companies (MHC). Six out of twelve mutual associations converted their legal form to MHC and operate since then in the insurance business as stock companies while they continue their asset management as mutual associations. The membership of the MHC customers is still maintained but the co-determination rights are restricted to a specified number of members’ representatives who are elected by co-optation. The MHCs rank among the leading insurance companies in Austria and represent a market share of 21% of the total premium income. In case of the restricted opportunities for mutual associations to increase the equity capital, MHCs choose the change in legal form and expand their international business especially in the CEE-countries. After a legal amendment to the Austrian Insurance Supervision Act in 2005, two mutual associations out of one MHC changed the legal form of their asset management from a mutual association to a private foundation. As a result, the members became automatically the beneficiaries of the foundation and the self-government vanished completely.

Six mutual associations are still operating as conventional mutual associations and concentrate their business regarding region, insurance segment, or policyholders’ profession. They have a market share of almost 4% which reflects the minor importance of mutuals in the Austrian insurance landscape. Most of these mutual associations have a similar self-government system with co-optation at the general meeting and few co-determination rights for the members. Due to the historical development and the late introduction of legal foundations for mutual associations the mutuality principles have long been neglected and the differences between stock companies and mutual associations have never been published for the customers. As a consequence, a renaissance of the mutuals in the Austrian insurance sector cannot be predicted and an economic catching-up in times of financial crises cannot be observed.