Our Guarantee Fund
The underlying principles of mutuals have not been of
profit, but of cooperation and self help. This theme has
endured for well over 100 years and continues to this day. In
the beginning, the mutual policyholder was required to sign a
premium note agreeing to assume certain liabilities of the
company directly proportionate to the policyholder's limit of
protection.
The general idea was to get a number of neighbours together
for the purpose of sharing risk. Typically, buildings and
chattels in those buildings were insured. When fire occurred,
an assessment of whatever percentage was needed was levied,
collected in due course, and paid over to the unfortunate one
who had suffered the loss.
As the time passed, mutual companies were urged by regulators
to adopt uniform methods to ensure safety of the company and
justice to the individual policyholders. This gave rise to the
adoption of a plan whereby companies would estimate future
losses and cost of operation as a basis for rates. Under this
system, levy on the premium note was only made when expenses
exceeded the estimated cost for the year.
Gradually, mutual companies moved away from the assessment
system in favour of collecting premiums in advance - however
legislation required that the premium note remain in place for
all policyholders of purely mutual companies until the
formation of the Fire Mutuals Guarantee Fund in 1975.
The premium note was the financial backing of the mutual
companies and served as a vital factor in their establishment
and development. However, by the early 1970's it had become
apparent that it would be in order to develop a better
alternative. The result was the formation of the Fire Mutuals
Guarantee Fund.
Again, through the theories of "strength in
unity" and "neighbour helping neighbour" the
mutuals entered an agreement whereby an open-ended fund was
set up for the purpose of guaranteeing that all policyholders'
outstanding claims and unearned premiums would be honoured in
the event that any one of the mutuals could not honour its
claims or outstanding policies. This fund is backed by each of
the mutuals and the Farm Mutual Reinsurance Plan Inc., thereby
placing the surplus of all member mutuals behind any one.
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