Mutual Company

What Is a Mutual Company?

A mutual company is a private firm that is owned by its customers or policyholders. The company's customers are additionally its owners. Thusly, they are qualified for receive a share of the profits produced by the mutual company.

The distribution of profits is commonly made as dividends paid on a pro rata basis, in view of the amount of business every customer conducts with the mutual company. On the other hand, a few mutual companies decide to utilize their profits to reduce individuals' premiums.

A mutual company is sometimes alluded to as a cooperative.

How a Mutual Company Works

The mutual company structure is commonly found in the insurance industry and sometimes in savings and loans associations. Many banking trusts and community banks in the U.S., as well as credit unions in Canada, likewise are structured as mutual companies.

The principal mutual insurance company was formed in England in the seventeenth century. The word mutual was probably adopted to mirror the way that the policyholder, or customer, was additionally the insurer, or part owner.

The main insurance company in the U.S. was a mutual company, The Philadelphia Contributionship for the Insurance of Houses from Loss by Fire. It was founded in 1752 by none other than Benjamin Franklin.

Most institutions that are structured as mutual companies are private substances instead of publicly traded companies. In recent many years, numerous mutual companies in the U.S. furthermore, Canada have picked to change from a mutual structure to a joint stock corporate structure, a process known as demutualization. As part of this process, policyholders get a one-time award of stock in the recently made joint stock corporation.

There is minimal considerable difference between the two corporate structures. A joint stock corporation is generally viewed as more centered around short-term profit while a mutual company might focus on strong cash reserves in case of unusual claims levels.

Benefits of a Mutual Company

A major selling point of mutual insurance companies is its shared ownership structure. Policyholders get a portion of the cost of their premiums back as dividends or reduced premium prices.

Numerous mutual companies have changed to a joint stock corporate structure. This process is called demutualization.

For instance, Lawyers' Mutual Insurance Co., a California-based company, recently paid a 10% dividend to its shareholders. It has paid dividends for 23 consecutive years.

As suggested by the name of that company, mutual companies frequently are specific. They were formed by and for a group of professionals who frequently have common requirements.

Features

• Every policyholder is qualified for a share of the profits, paid as a dividend or a reduced premium price.
• They are most frequently insurance companies.
• A mutual company is owned by its customers, who share in the profits.