HOME

TheInfoList




A mutual, mutual organization, or mutual society is an
organization An organization, or organisation (Commonwealth English The use of the English language English is a of the , originally spoken by the inhabitants of . It is named after the , one of the ancient that migrated from , a peninsu ...

organization
(which is often, but not always, a
company A company, abbreviated as co., is a Legal personality, legal entity representing an association of people, whether Natural person, natural, Legal person, legal or a mixture of both, with a specific objective. Company members share a common pu ...
or
business Business is the activity of making one's living or making money by producing or buying and selling products (such as goods and services). Simply put, it is "any activity or enterprise entered into for profit." Having a business name A trad ...

business
) based on the principle of mutuality and governed by private law. Unlike a true
cooperative A cooperative (also known as co-operative, co-op, or coop) is "an autonomous The federal subject The federal subjects of Russia, also referred to as the subjects of the Russian Federation (russian: субъекты Российск ...
, members usually do not contribute to the
capital Capital most commonly refers to: * Capital letter Letter case (or just case) is the distinction between the letters that are in larger uppercase or capitals (or more formally ''majuscule'') and smaller lowercase (or more formally ''minusc ...
of the company by direct investment, but derive their right to profits and votes through their
customer In sales Sales are activities related to selling or the number of goods sold in a given targeted time period. The delivery of a service for a cost is also considered a sale. The seller, or the provider of the goods or services, comple ...

customer
relationship. A mutual organization or society is often simply referred to as ''a mutual''. A mutual exists with the purpose of raising
funds Funding is the act of providing resources A resource is a source or supply from which a benefit is produced and that has some utility. Resources can broadly be classified upon their availability — they are classified into renewable and non-re ...

funds
from its membership or customers (collectively called its ''members''), which can then be used to provide common services to all members of the organization or society. A mutual is therefore owned by, and run for the benefit of, its members – it has no external
shareholder A shareholder (in the United States often referred to as stockholder) of a corporation is an individual or legal entity (such as another corporation, a body politic, a Trust law, trust or partnership) that is registered by the corporation as the ...
s to pay in the form of
dividend A dividend is a distribution of profit Profit may refer to: Business and law * Profit (accounting), the difference between the purchase price and the costs of bringing to market * Profit (economics), normal profit and economic profit * Profit ...

dividend
s, and as such does not usually seek to maximize and make large profits or
capital gain Capital gain is an economic concept defined as the profit Profit may refer to: Business and law * Profit (accounting) Profit, in accounting Accounting or Accountancy is the measurement, processing, and communication of financial an ...
s. Mutuals exist for the members to benefit from the services they provide and often do not pay
income tax An income tax is a tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity In law Law is a system A system is a group of Interaction, interacting or interrelate ...
. Profits made will usually be re-invested in the mutual for the benefit of the members, although some profit may also be necessary in the case of mutuals for
internal financingIn the theory of capital structure, internal financing is the process of a firm using its profits or asset In financial accountancy, financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is any ...
to sustain or grow the organization, and to make sure it remains safe and secure.


Background

The primary form of financial business set up as a mutual company in the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...

United States
has been
mutual insurance#redirect Mutual insuranceA mutual insurance company is an insurance Insurance is a means of protection from financial loss. It is a form of risk management, primarily used to hedge against the risk of a contingent or uncertain loss. An en ...
. Some insurance companies are set up as stock companies and then mutualized, their ownership passing to their policy owners. In mutual insurance companies, what would have been profits are instead rebated to the clients in the form of
dividend A dividend is a distribution of profit Profit may refer to: Business and law * Profit (accounting), the difference between the purchase price and the costs of bringing to market * Profit (economics), normal profit and economic profit * Profit ...

dividend
distributions, reduced future premiums or paid up additions to the policy value. This is a competitive advantage to such companies—the idea of owning a piece of the company could be more attractive to some potential clients than the idea of being a source of profits for investors. In the typical stock company, profits go to shareholders. In contrast, a mutual manages the company in the best interests of the customers. Furthermore, a mutual company is able to focus on a longer horizon than a typical company. Some mutual insurance companies make this claim explicitly. In more general terms, mutual organizations are able to minimize the
principal–agent problem The principal–agent problem, in political science Political science is the scientific study of politics Politics (from , ) is the set of activities that are associated with making decisions In psychology, decision-making (also sp ...
by removing one stakeholder, the investor-owner, in favor of one of the other stakeholders, usually the customer, who becomes both user and joint owner of the business. However, the mutual form of ownership also has disadvantages. One example is that mutual companies have no shares to sell and hence no access to
equity market A stock market, equity market, or share market is the aggregation of buyers and sellers of stocks (also called shares), which represent ownership claims on businesses; these may include ''securities'' listed on a public stock exchange, as w ...
s. At one time, most major U.S. life insurers were mutual companies. For many years, the tax status of such organizations was open to dispute, as they were technically
nonprofit A nonprofit organization (NPO), also known as a non-business entity, not-for-profit organization, or nonprofit institution, is a legal entity organized and operated for a collective, public or social benefit, in contrast with an entity that o ...
organizations. Eventually, it was agreed that federal taxation would be based on their share of business: for instance, in years in which mutual companies represented half of the business, they would be responsible for half of the taxes paid by the industry. Many
savings and loan association A savings and loan association (S&L), or thrift institution, is a financial institution that specializes in accepting savings deposits and making mortgage and other loans. The terms "S&L" or "thrift" are mainly used in the United States ...
s were also mutual companies, owned by their depositors. As a form of corporate ownership the mutual has fallen out of favor in the U.S. since the 1980s. Savings and loan industry
deregulation Deregulation is the process of removing or reducing state regulations, typically in the economic sphere. It is the repeal of governmental regulation of the economy. It became common in advanced industrial economies in the 1970s and 1980s, as a r ...
and the late 1980s
savings and loan crisisThe savings and loan crisis of the 1980s and 1990s (commonly dubbed the S&L crisis) was the failure of 1,043 out of the 3,234 savings and loan associations (S&Ls) in the United States from 1986 to 1995. An S&L or "thrift" is a financial institution t ...
led many to change to stock ownership, or in some cases into
bank A bank is a financial institution Financial institutions, otherwise known as banking institutions, are corporation A corporation is an organization—usually a group of people or a company—authorized by the State (polity), stat ...

bank
s. Many large U.S.-based insurance companies, such as the Prudential Insurance Company of America and the
Metropolitan Life Insurance Company MetLife, Inc. is the holding corporation for the Metropolitan Life Insurance Company (MLIC), better known as MetLife, and its affiliates. MetLife is among the largest global providers of insurance Insurance is a means of protection from f ...

Metropolitan Life Insurance Company
have ''demutualized'', with shares of stock being distributed to their policyholders to represent the ownership interest they formerly had in the form of their interest as mutual policyholders. The
Mutual of Omaha Mutual of Omaha is a Fortune 500 The ''Fortune'' 500 is an annual list compiled and published by '' Fortune'' magazine that ranks 500 of the largest United States The United States of America (USA), commonly known as the United States (U ...
Insurance Company has also investigated demutualization, even though its form of ownership is embedded in its name. It is noted that other formerly mutual companies such as
Washington Mutual Washington Mutual, Inc—abbreviated to WaMu—was a Bank holding company, savings bank holding company and the former owner of JPMorgan Chase#Washington Mutual, WaMu Bank, which was the United States' largest savings and loan association until it ...
, a former
savings and loan association A savings and loan association (S&L), or thrift institution, is a financial institution that specializes in accepting savings deposits and making mortgage and other loans. The terms "S&L" or "thrift" are mainly used in the United States ...
, have been allowed to demutualize and yet retain their names. The approximate
British British may refer to: Peoples, culture, and language * British people The British people, or Britons, are the citizens of the United Kingdom of Great Britain and Northern Ireland The United Kingdom of Great Britain and Northern Ir ...

British
equivalent of the savings and loan is the
building society A building society is a financial institution Financial institutions, otherwise known as banking institutions, are corporation A corporation is an organization—usually a group of people or a company—authorized by the State (polit ...
. Building societies also went through an era of demutualisation in the 1980s and 1990s, leaving only one large national building society and currently 43 (Sept 2016) smaller regional and local ones. Significant
demutualisation Demutualization is the process by which a customer-owned mutual organization A mutual, mutual organization, or mutual society is an organization An organization, or organisation ( Commonwealth English; see spelling differences), is an ent ...
also occurred in Australia and South Africa in the same era.
Cooperatives A cooperative (also known as co-operative, co-op, or coop) is "an autonomous The federal subject in Russia">Federal subjects of Russia">federal subject in Russia, close to borders of Finland. Picture of Petrozavodsk, the capital of the ...
are very similar to mutual companies. They tend to deal in primarily tangible goods and services such as agricultural commodities or utilities rather than intangible products such as
financial services Financial services are the economic services provided by the finance Finance is a term for the management, creation, and study of money In a 1786 James Gillray caricature, the plentiful money bags handed to King George III are contra ...
. Nevertheless, banking institutions with close ties to the co-operative movement are usually known as
credit union A credit union, a type of financial institution similar to a commercial bank, is a member-owned financial cooperative, controlled by its members and operated on a not-for-profit basis. Credit unions generally provide services to members simila ...
s or cooperative banks rather than mutuals.


Modern mutuality

Various types of
financial institution Financial institutions, otherwise known as banking institutions, are corporation A corporation is an organization—usually a group of people or a company—authorized by the State (polity), state to act as a single entity (a legal entit ...
s around the world are mutuals, and examples include: *
Asset management #REDIRECT Asset management Asset management refers to a systematic approach to the governance and realization of value from the things that a group or entity is responsible for, over their whole life cycles. It may apply both to tangible asset ...
companies (most are not mutual) **
The Vanguard Group The Vanguard Group, Inc. is an American registered investment advisorA registered investment adviser (RIA) is a firm that is an investment adviser in the United States The United States of America (USA), commonly known as the United Stat ...
– United States **
TIAA The Teachers Insurance and Annuity Association of America-College Retirement Equities Fund (TIAA, formerly TIAA-CREF), is a Fortune 100 The ''Fortune'' 500 is an annual list compiled and published by '' Fortune'' magazine that ranks 500 of the ...
(formerly TIAA-CREF) – United States *
Building societies A building society is a financial institution owned by its members as a mutual organization. Building societies offer banking and related financial services Financial services are the Service (economics), economic services provided by the fi ...
**
Nationwide Building Society Nationwide Building Society is a British mutual financial institution, the seventh largest cooperative financial institution and the largest building society A building society is a financial institution owned by its members as a mutual o ...
– United Kingdom, largest building society * Cooperative banks *
Credit union A credit union, a type of financial institution similar to a commercial bank, is a member-owned financial cooperative, controlled by its members and operated on a not-for-profit basis. Credit unions generally provide services to members simila ...
s *
Friendly societies A friendly society (sometimes called a benefit society, mutual aid society, benevolent society, fraternal and service organisations, fraternal organization or Rotating savings and credit association, ROSCA) is a mutual association for the purpos ...
* Mutual healthcare providers such as
Benenden Healthcare Society Benenden Health (formerly The Post Office Sanatorium Society) is a mutual society in the UK providing private medical cover. Its membership consists of over 800,000 individuals and employees of corporate schemes provided by them. Benenden Health was ...
– United Kingdom *
Mutual insurance#redirect Mutual insuranceA mutual insurance company is an insurance Insurance is a means of protection from financial loss. It is a form of risk management, primarily used to hedge against the risk of a contingent or uncertain loss. An en ...
/assurance companies ** Current: see Mutual insurance#List of mutual insurance companies ** Former: *** Gjensidige ASA – Norway ***
Metropolitan Life MetLife, Inc. is the holding corporation for the Metropolitan Life Insurance Company (MLIC), better known as MetLife, and its affiliates. MetLife is among the largest global providers of insurance Insurance is a means of protection from f ...
– United States ***
Principal Financial Group Principal Financial Group is an American global financial investment management Investment management is the professional asset management Asset management refers to a systematic approach to the governance and realization of value from the ...
– United States *** Prudential – United States *
Mutual savings bank A mutual savings bank is a financial institution chartered by a central or regional government, without capital stock, owned by its members who subscribe to a common fund. From this fund, claims, loans, etc., are paid. Profits after deductions ...
s *
Protection and indemnity insuranceProtection and indemnity insurance, more commonly known as P&I insurance, is a form of mutual maritime insurance provided by a P&I club. Whereas a marine insurance company provides "hull and machinery" cover for shipowners, and cargo cover for cargo ...
*
Savings and loan association A savings and loan association (S&L), or thrift institution, is a financial institution that specializes in accepting savings deposits and making mortgage and other loans. The terms "S&L" or "thrift" are mainly used in the United States ...
s *
StokvelStokvels are invitation-only clubs of twelve or more people serving as rotating credit unions or saving schemes in South Africa where members contribute fixed sums of money to a central fund on a weekly, fortnightly or monthly basis. The name “stok ...
s Some mutual financial institutions offer services very similar to (if not the same as) those of a
commercial bank A commercial bank is a financial institution Financial institutions, otherwise known as banking institutions, are corporation A corporation is an organization—usually a group of people or a company—authorized by the State (polity) ...
. In some markets, mutuals offer very competitive
interest rate An interest rate is the amount of interest In and , interest is payment from a or deposit-taking financial institution to a or depositor of an amount above repayment of the (that is, the amount borrowed), at a particular rate. It is disti ...
s and fee tariffs on
savings Wealth is the abundance of valuable financial asset A financial asset is a non-physical asset In financial accountancy, financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (ta ...
and
deposit account A deposit account is a bank account A bank account is a financial account maintained by a bank or other financial institution in which the financial transaction A financial transaction is an Contract, agreement, or communication, carried o ...
s,
mortgages A mortgage loan or simply mortgage () is a loan In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations etc. The recipient (i.e., the borrower) incurs a ...
and
loans In finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and investments. Savers and investors have money avai ...
. The members who save and borrow with the mutual ultimately own the business.


Conversion

A mutual may convert itself to a non-mutual through the process of
demutualization Demutualization is the process by which a customer-owned mutual organization (''mutual'') or co-operative A cooperative (also known as co-operative, co-op, or coop) is "an autonomy, autonomous association of persons united voluntarily to meet ...
. This process became increasingly common in the 1980s as a result of deregulation. In the United States, conversion may be full, to a
public company A public company, publicly traded company, publicly held company, publicly listed company, or public limited company is a company whose ownership is organized via shares of share capital, stock which are intended to be freely traded on a stock ...
, or, in many states, partial, to a ''mutual
holding company A holding company is a company whose primary business is holding a controlling interest in the securities of other companies. A holding company usually does not produce goods or services itself. Its purpose is to own shares of other companies ...
''.


References


External links


Are mutuals an endangered species?
— Swiss RE article on the result of demutualization activity.

– Swiss RE

(Commissioned by the UK House of Commons, 2001) {{Insurance