To say the past few years have been a challenge for mutualinsurers would be an understatement as they have dealt with analmost decade-long soft market, a prolonged economic downturn andrecord catastrophe claims in 2011.

"It's been a heck of a year," confesses Charles M. Chamness, thepresident and CEO of the National Association of Mutual InsuranceCos. (NAMIC).

As NAMIC gathers for its116^th annual meeting in Indianapolis Sept. 18-21,Chamness says the combination of record winter storms, tornadoesand other extreme weather events this year have kept members busypaying claims. Add to that the onset of the hurricane season, andit has been a very trying year.

The stress on insurers' revenues is compounded by the return oninvestments having been "less than certain," making the carriers'earnings even more tenuous.

"Everywhere you look you see a very challenging year for theinsurance industry," says Chamness.

However, mutual insurers are more than capable of meeting thechallenge.

"In spite of all this, more than half-way through 2011, ourmembers are strong," says Chamness. "They are sturdy businesseswith a long-term focus that are built for enduring the worst kindof turmoil that is out there—and to be there to serve theirpolicyholders over the long term."

Jim Kennedy, the incoming chairman of NAMIC and president andCEO of Bucyrus, Ohio-based Ohio Mutual Insurance Group, concurs."This is a long-term business," notes Kennedy. "We don't get intoour problems overnight; we don't get out of them overnight. Theability to make long-term decisions to deal with the issues wemight be presented with is a good counter-balance to some of themore perceived advantages a stock company might have.

"From my perspective," he continues, "the marketplace conditionsthat we are in—the soft market, the difficult catastropheenvironment, the low-investment environment and the need to focuson underwriting—those are 'equal opportunity' [challenges] whetheryou are a stock company or a mutual company.

"To me it comes back to the integrity of the organizations, thequality of the organizations and how they manage their way throughthose kinds of challenges," Kennedy adds.

"With their singular focus on thepolicyholder and their long-term view of business, the future ofmutuals is quite bright, and I'm quite bullish about this group,"he says.

Publicly traded companies face the quarterly pressure ofanswering to shareholders and financial analysts, Kennedy pointsout. This gives mutuals an advantage to focus on policyholders and"look at our industry a little wider."

Considering that insurers' investment returns have not been "asrobust as they have been in the past," it has caused the carriersto refocus their attention on underwriting profit, which Kennedybelieves "will only help all of us in the long run."

DIFFICULT ENVIRONMENT, BUT NOT MUCHDE-MUTUALIZATION

No matter how difficult the environment, Chamness says he doesnot believe there will be a lot of mutuals de-mutualizing. It is anexpensive proposition, he says, and with the regulatory approvalsinvolved, it is not a proposition many mutual companies warmto.

The more likely scenario is for mutual companies to formpartnerships and affiliate with one another, pooling togetherresources and sharing systems and management. In these situations,the healthier partner will have a greater say over managing the twocompanies.

"There may be a slight uptick [in the number of partnerships].There is usually just a handful in most years, and perhaps therewill be a few more this year," says Chamness.

MUTUALS & TECHNOLOGY

Small to medium-sized mutuals are making choices about theirtechnology investments to drive connectivity and meet the growingdemands of a tech-savvy world. For them, the pressures are greaterbecause the expense of investment makes it an "all or nothingproposition," Chamness says.

"There's not a second chance if they screw it up," he adds."Having the people in place to make the right decisions will growin importance."