Ownership and Performance: Stock and Mutual Life Insurance Companies

Abstract

Stock and mutual life insurance companies exhibit different performance characteristics. The results of a comparison made with samples of 19 stocks and 27 mutuals, which operated under New York regulations between 1952 and 1966, provided evidence of these differences. Two performance measures were utilized: percentage increase in assets over the 15 year period and percentage change in net premium income. With both measures the difference was significant at the .01 level. Although the observed stocks and mutuals differed in size and product mix, the performance differences could be attributed to ownership. The research design utilized control hypotheses concerning company size and benefit payout level in order to ascertain if ownership was the causal factor. Compared with possible determinants of corporate performance, ownership has received little attention in economic literatuLre. Although capital stock corporations dominate the American economy, vast resources and productive capacity are held by co-operatives, foundations, government-owned corporations, and mutual companies. An important difference between these corporate types and the capital stock corporation is the nature of property rights inherent in ownership shares. Shares of capital stock corporations may be purchased or sold without quantity restriction at a market determined price. In these other ownership types there is usually neither a market determined price nor unconstrained transactions in equity shares. In the case of mutual life insurance companies, owners must be policyholders and generally may hold no more than one equity share. Capital stock life insurance companies in 1950 provided 30 percent of all U.S. Richard Spiller, Ph.D., is Associate Professor of Marketing in California State College at Long Beach. This paper was presented at the 1971 Annual Meeting of A.R.I.A. life insurance in force. By 1969 their share of market had increased to 48 percent.1 This rapid increase relative to mutual life insurance companies competing in the same market suggests possible performance and behavioral differences in the two ownership types. Although some of the change in the relative position of stocks and mutuals may be attributed to the many new stock companies which began operations during these years, there is evidence of behavioral differences in stocks and mutuals. The objectives of this study are to test the hypothesis that performance of stocks and mutuals differ and to consider some possible causal factors underlying any differences. In a more general sense, this is an effort to provide empirical evidence of the effect of alternate ownership forms on corporate performance. In the life insurance industry, mutual companies compete against profit-oriented firms which have the same market opportunities and comply with essentially the same regulations. Both types of com1 Institute of Life Insurance, Life Insurance Fact Book. New York, 1951, 1970.