How are Mutual Insurance Companies (Cooperatives) Formed?
A mutual insurance company sometimes obtains initial capital from would-be policyholders but usually obtains it by borrowing money from investors. If the company is successful, borrowed money is ultimately repaid from the insurer’s operating profits. Additional operating profits may be retained to finance future growth and provide a cushion against future liabilities. Insurance company management can also decide to share profits with policyholders in the form of policyholder dividends. Mutual insurance company policyholders generally are not responsible for losses that exceed the insurance company’s resources. However, some mutual insurers, known as assessable mutuals, preserve the right to assess policyholders to obtain additional funds if that becomes necessary for the insurer to meet its obligations. Such assessments typically are limited to one additional annual premium payment. Fun fact the first mutual insurance company in American was the Philadelphia Contributionship for the In
