Mutual insurers have proven “quite resilient” during the economic downturn and have gained market share, but they still face diverse challenges that include raising capital, rating agency A.M. Best Co. Inc. said in a special report.

While access to capital is an obstacle for all types of businesses in the difficult market, the report said it is an even bigger hurdle for mutuals because they cannot access the stock markets for funds.

Other challenges facing mutual insurers include increased competition and heightened regulatory requirements, according to Oldwick, N.J.-based Best. Mutual insurers in Europe are expected to face increased financial burdens because of the Solvency II directive, the European Union solvency regime that is to go into effect in 2012.

“These challenges are expected to drive consolidation and partnerships around the world, particularly among smaller mutuals looking to share central resources,” Yvonne Essen, London-based head of market analysis within Best’s global financial services division and author of the report, said in a statement. “While the bigger mutuals may have the bigger budgets and time to promote their values, the smaller, regional players may simply not be able to survive.”

Mutuals, which are gaining market share, now account for 26.5% of insurance premiums worldwide, according to the Cheshire, England-based International Cooperative and Mutual Insurance Federation.

The Best report, “Mutuals Under the Microscope as Market Share Grows,” which is based on ICMIF data, was issued Oct. 2 at the organization’s biennial conference.

Copyright © 2009 Crain Communications, Inc.