A Look at Demutualization
Article Abstract:
The Heiman Commission, founded in 1981, in New York, was given the responsibility for updating the state's insurance laws. The primary focus of the panel was the restrictive nature of the existing law with regard to the investments, operations, and practices of insurance companies. The panel's findings are of particular interest because the nation's three largest life insurers, mutuals, have their base of operations in New York. The panel recommended that mutuals be allowed to convert to stock form. The basis of this recommendation is analyzed. Greater flexibility of operations is facilitated with the stock form of organization. Stock firms can employ their own share to get capital or make acquisitions, form upstream holding firms and give a wider selection of executive incentives. A basic guide to the difficulties of the conversion process is included. Commercial mutuals have always had restrictions on policyholders ownership rights and surplus interest. The historical background of mutuals, dating back to England, is highlighted. Conversion may be affected by more than one state's laws, although the place of domicile will normally prove authoritative. Conversion can be had through straight conversion, merger, or consolidation or bulk reinsurance.
Publication Name: Best's Review Life-Health Insurance Edition
Subject: Insurance
ISSN: 0275-0988
Year: 1984
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Taking Stock of Demutualization
Article Abstract:
Problems exist for a mutual insurance company considering converting to a stock format. Equity must be established for policyholders. Capital must exist to expand product line and to keep expense ratio competitive. More capital is needed to compete with companies offering financial services even though the future of these services is unknown. The need for sound management and a profitable company in the mutual form is seen as a necessity for successful transfer. Some state laws and regulations dictate distribution formulas. These formulas do not consider stock value in poor underwriting conditions. It is important for managers to offer the company fairly at market rather than theoretical value. Post conversion policies must justify demutualization.
Publication Name: Best's Review Property-Casualty Insurance Edition
Subject: Insurance
ISSN: 0005-9714
Year: 1984
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New-look GICs
Article Abstract:
Alternative guaranteed-investment contract (GIC) products are becoming increasingly popular with 401(k) salary reduction plans. Originally, GICs were popular because risk was controlled despite rapidly rising interest rates. However, plan sponsors soon lost interest in many GICs because of insurer insolvencies and rating downgrades. The new GICs tend to have a low guarantee level and limited investment choices. In the future, GIC products are expected to increase investment flexibility.
Publication Name: Best's Review Life-Health Insurance Edition
Subject: Insurance
ISSN: 0275-0988
Year: 1992
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