This article needs additional citations for verification .(December 2009) |
A mutual organization, also mutual society or simply mutual, is an organization (which is often, but not always, a company or business) based on the principle of mutuality and governed by private law. Unlike a cooperative, members usually do not directly contribute to the capital of the organization, but derive their right to profits and votes through their customer relationship.
A mutual exists with the purpose of raising 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 shareholders to pay in the form of dividends, and as such does not usually seek to maximize and make large profits or capital gains. Mutuals exist for the members to benefit from the services they provide and often do not pay income tax. [1]
Surplus revenue made will usually be re-invested in the mutual to sustain or grow the organization, though some mutuals operate a dividend scheme similar to a cooperative. [2]
The primary form of financial business set up as a mutual company in the United States has been mutual insurance. 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 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. [3]
In more general terms, mutual organizations are able to minimize the principal–agent problem 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. [4]
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 markets.
At one time,[ when? ] 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 organizations. Eventually,[ when? ] 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 associations 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 and the late 1980s savings and loan crisis led many to change to stock ownership, or in some cases into banks. Many large U.S.-based insurance companies, such as the Prudential Insurance Company of America and the 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 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, a former savings and loan association, have been allowed to demutualize and yet retain their names.
The approximate British equivalent of the savings and loan is the building society. Building societies also went through an era of demutualisation in the 1980s and 1990s, leaving only one large national building society and around forty smaller regional and local ones. Significant demutualisation also occurred in Australia and South Africa in the same era.
Cooperatives 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. Nevertheless, banking institutions with close ties to the co-operative movement are usually known as credit unions or cooperative banks rather than mutuals.
Various types of financial institutions around the world are mutuals, and examples include:
Some mutual financial institutions offer services very similar to (if not the same as) those of a commercial bank. In some markets, mutuals offer very competitive interest rates and fee tariffs on savings and deposit accounts, mortgages and loans. The members who save and borrow with the mutual ultimately own the business.
Mutualization or mutualisation is the process by which a joint stock company changes legal form to a mutual organization or a cooperative, so that the majority of the stock is owned by employees or customers. [5]
Demutualization or demutualisation is the reverse process, whereby a mutual may convert itself to a joint-stock company. 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, or in many states, partial, to a mutual holding company.
A building society is a financial institution owned by its members as a mutual organization, which offers banking and related financial services, especially savings and mortgage lending. They exist in the United Kingdom, Australia and New Zealand, and formerly in Ireland and several Commonwealth countries, including South Africa as mutual banks. They are similar to credit unions, but rather than promoting thrift and offering unsecured and business loans, the purpose of a building society is to provide home mortgages to members. Borrowers and depositors are society members, setting policy and appointing directors on a one-member, one-vote basis. Building societies often provide other retail banking services, such as current accounts, credit cards and personal loans. The term "building society" first arose in the 19th century in Great Britain from cooperative savings groups.
Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to protect against the risk of a contingent or uncertain loss.
A cooperative is "an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically-controlled enterprise". Cooperatives are democratically controlled by their members, with each member having one vote in electing the board of directors. Cooperatives may include:
Financial services are economic services tied to finance provided by financial institutions. Financial services encompass a broad range of service sector activities, especially as concerns financial management and consumer finance.
BSE Limited, also known as the Bombay Stock Exchange (BSE), is an Indian stock exchange which is located on Dalal Street, known as the Wall Street of Mumbai, in turn described as the New York of India. Established in 1875 by cotton merchant Premchand Roychand, it is the oldest stock exchange in Asia, and also the tenth oldest in the world. The BSE is the world's 8th largest stock exchange with a market capitalization exceeding US$4.5 trillion as of January 2024.
The Abbey National Building Society was formed in 1944 by the merger of the Abbey Road and the National building societies.
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, annuities, and employee benefit programs, with around 90 million customers in over 60 countries. The firm was founded on March 24, 1868. MetLife ranked No. 43 in the 2018 Fortune 500 list of the largest United States corporations by total revenue.
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" and "thrift" are mainly used in the United States; similar institutions in the United Kingdom, Ireland and some Commonwealth countries include building societies and trustee savings banks. They are often mutually held, meaning that the depositors and borrowers are members with voting rights, and have the ability to direct the financial and managerial goals of the organization like the members of a credit union or the policyholders of a mutual insurance company. While it is possible for an S&L to be a joint-stock company, and even publicly traded, in such instances it is no longer truly a mutual association, and depositors and borrowers no longer have membership rights and managerial control. By law, thrifts can have no more than 20 percent of their lending in commercial loans—their focus on mortgage and consumer loans makes them particularly vulnerable to housing downturns such as the deep one the U.S. experienced in 2007.
Demutualization is the process by which a customer-owned mutual organization (mutual) or co-operative changes legal form to a joint stock company. It is sometimes called stocking or privatization. As part of the demutualization process, members of a mutual usually receive a "windfall" payout, in the form of shares in the successor company, a cash payment, or a mixture of both. Mutualization or mutualisation is the opposite process, wherein a shareholder-owned company is converted into a mutual organization, typically through takeover by an existing mutual organization. Furthermore, re-mutualization depicts the process of aligning or refreshing the interest and objectives of the members of the mutual society.
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 are shared among the members. The institution is intended to provide a safe place for individual members to save and to invest those savings in mortgages, loans, stocks, bonds and other securities and to share in any profits or losses that result.
Manulife Financial Corporation is a Canadian multinational insurance company and financial services provider headquartered in Toronto, Ontario. The company operates in Canada and Asia as "Manulife" and in the United States primarily through its John Hancock Financial division. As of December 2021, the company employed approximately 38,000 people and had 119,000 agents under contract, and has CA$1.4 trillion in assets under management and administration. Manulife at one point serviced over 26 million customers worldwide.
Whole life insurance, or whole of life assurance, sometimes called "straight life" or "ordinary life", is a life insurance policy which is guaranteed to remain in force for the insured's entire lifetime, provided required premiums are paid, or to the maturity date. As a life insurance policy it represents a contract between the insured and insurer that as long as the contract terms are met, the insurer will pay the death benefit of the policy to the policy's beneficiaries when the insured dies. Because whole life policies are guaranteed to remain in force as long as the required premiums are paid, the premiums are typically much higher than those of term life insurance where the premium is fixed only for a limited term. Whole life premiums are fixed, based on the age of issue, and usually do not increase with age. The insured party normally pays premiums until death, except for limited pay policies which may be paid up in 10 years, 20 years, or at age 65. Whole life insurance belongs to the cash value category of life insurance, which also includes universal life, variable life, and endowment policies.
A mutual insurance company is an insurance company owned entirely by its policyholders. It is a form of consumers' co-operative. Any profits earned by a mutual insurance company are either retained within the company or rebated to policyholders in the form of dividend distributions or reduced future premiums. In contrast, a stock insurance company is owned by investors who have purchased company stock; any profits generated by a stock insurance company are distributed to the investors without necessarily benefiting the policyholders.
The main elements of Japan's financial system are much the same as those of other major industrialized nations: a commercial banking system, which accepts deposits, extends loans to businesses, and deals in foreign exchange; specialized government-owned financial institutions, which fund various sectors of the domestic economy; securities companies, which provide brokerage services, underwrite corporate and government securities, and deal in securities markets; capital markets, which offer the means to finance public and private debt and to sell residual corporate ownership; and money markets, which offer banks a source of liquidity and provide the Bank of Japan with a tool to implement monetary policy.
A reciprocal inter-insurance exchange or simply a reciprocal in the United States is an unincorporated association in which subscribers exchange insurance policies to pool and spread risk. For consumers, reciprocal exchanges often offer similar policies to those offered by a stock company or a mutual insurance company. Notable reciprocal exchanges are managed by USAA, Farmers, and Erie.
Cooperative banking is retail and commercial banking organized on a cooperative basis. Cooperative banking institutions take deposits and lend money in most parts of the world.
NFU Mutual is a UK insurance composite. As a mutual, its policyholder members own the business, and the executives and directors are accountable to them. The full name of the organisation is National Farmers' Union Mutual Insurance Society Limited.
Dollar Bank is a full-service regional savings bank serving both individuals and business customers, operating more than 90 offices throughout Pennsylvania, Ohio, Maryland, and Virginia. The bank's corporate headquarters is located in downtown Pittsburgh alongside its Pennsylvania regional headquarters. The Ohio headquarters is located in downtown Cleveland, and Virginia headquarters is located in Hampton Roads.
The New York State Banking Department was created by the New York Legislature on April 15, 1851, with a chief officer to be known as the Superintendent. The New York State Banking Department was the oldest bank regulatory agency in the United States.
Dedham Savings is one of the oldest American banks still in operation and one of the oldest banks in the state of Massachusetts still doing business under its original charter.