Mutual company reorganizations

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Several mutual life insurance companies have recently demutualized or formed a mutual holding company, and almost all mutuals are studying their options. If you own or recently dropped a life insurance policy or an annuity contract issued by a mutual company, or if you are thinking of buying one, this may affect you.

Existing policyholders have money at stake in the decision to adopt a mutual holding company structure versus a full demutualization, or to remain a purely mutual company.

Prospective buyers should also pay attention, because a company's treatment of its existing policyholders may give you an indication of how you will be treated in the future. As you review a company's actions regarding reorganization, you may feel more comfortable doing business with the company or you may decide to go elsewhere.

You can read an overview in Q&A format, and you can look at a table showing the reorganization status of major mutual life insurance companies.

You can also download this reading list for more information.

Reading list (12/3/02; 45 kb) Download

You can get a good education on mutual holding companies and the controversy that surrounds them by looking at these online sources:

National Association of Insurance Commissioners, "Mutual Insurance Holding Company Reorganizations" Some insurance companies and state regulators complained that the first draft of this report was too pro-consumer, but a panel of regulators decided that the second draft was too pro-industry. The current version is the sixth draft, dated September 15, 1998.

New York State Assembly Standing Committee on Insurance, "The Feeling's Not Mutual: An Analysis of Governor Pataki's Proposed Mutual Holding Company Legislation" This deals specifically with proposed legislation in New York, but the issues that it discusses are important in all states.

Swiss Re, "Are mutuals an endangered species?" This report deals with broader issues of mutual ownership from a multinational perspective.

Other websites


- On August 6, 2008 the U.S. Court of Federal Claims ruled in favor of a taxpayer seeking a refund for income taxes paid on demutualization proceeds. Policyholders may need to file amended returns to preserve their potential rights to a refund of Federal and state income taxes. For more information, contact Charles D. Ulrich, CPA (,, 218-828-4289). He has been actively involved in the class-action lawsuit filed against the U.S. government. (8/13/08)

- A lot of Connecticut residents are missing out on a windfall. The Connecticut State Treasurer's Office recently created a database of almost 100,000 people who have not claimed $60 million from the demutualizations of John Hancock and Metlife. The list is at Connecticut's residents are probably no more careless than any other state's, so this could be a national issue. (1/9/05)

- The tax treatment of demutualization proceeds continues to be discussed. See Theo Francis and Tom Herman, "How to Tax Some Insurers' Shares," Wall Street Journal, 8/28/03. There's also information at (8/29/03) A class-action lawsuit has been filed against the U.S. government; the plaintiffs' attorney is Burgess J.W. Raby (480-967-1501). (9/7/05)

- The June 2003 issue of The Insurance Forum raises questions about the correct tax treatment of cash and stock received in demutualizations. The consensus has been that proceeds have a zero cost basis and are taxed as short-term or long-term capital gains based on the policy holding period. The proposed alternative would treat proceeds as policy dividends: their cost basis would be their value at distribution, there would be a corresponding reduction in the cost basis of the policy, and the holding period would begin at distribution. (5/6/03)

- The Job Creation and Worker Assistance Act of 2002, enacted in March 2002, suspends the IRC Section 809 tax on mutual life insurance companies for tax years 2001 through 2003. This eliminates one cost savings from demutualization. See H.R. 3090, Section 611. (3/15/02)

- In a June 29, 2001 memorandum, an IRS Branch Chief confirmed the common understanding about the tax treatment of demutualization proceeds. If the demutualization qualifies as a tax-free reorganization under IRC Section 368(a)(1), the taxpayer's holding period will start when the policy was purchased (not when the distribution occurred) and the cost basis will be zero. For most taxpayers, this means that income realized upon the receipt of cash or sale of stock will be treated as long-term capital gains. (12/14/01)

- Mutual company governance is making news again. On May 31, 2001 the Iowa Supreme Court reinstated a case against Allied Mutual's officers and directors, involving alleged wrongdoing in transactions between the mutual company and affiliated stock companies. The court decision is available online at This decision may cause other mutual companies to think more carefully about fiduciary duties. The June 15, 2001 issue of Schiff's Insurance Observer raises similar questions about dealings between Lumbermens Mutual and Kemper. Update on Allied litigation: In August 2005, a tentative settlement was reached with Nationwide (which bought Allied and inherited its liabilities); policyholders will receive $195 million.

- For a revealing look at how investment bankers arrive at fairness opinions, see Alex Berenson, "Valuing a Failed Dot-Com: Buy Low, Sell High, Send Lots of E-Mail," New York Times, May 22, 2001. The same process presumably applies to the fairness opinions rendered on mutual company restructurings.

- Demutualization has become a major issue in the U.K. Some investors are buying policies with the intent of profiting from pressured demutualizations, and this has led to a spirited discussion of the pros and cons of mutuality. You can get a taste of it by going to and doing a search on "Standard Life." Don't miss Magnus Linklater's "The moral maze of money and mutuality" and websites of the "carpetbaggers" who want to bring an end to the era of mutuals:, (5/21/00, updated 3/15/02)

- Advocates of mutual holding companies won a big victory on November 4, 1999 when Congress passed the Gramm-Leach- Bliley Financial Services Modernization Act. It was signed into law by President Clinton on November 12. This legislation contains a controversial provision (S.900, Section 312) that allows a mutual company to set up a mutual holding company in another state if the company's home state prohibits MHCs. "I can't do justice to this issue in so small a space," Jane Bryant Quinn wrote in the November 8, 1999 issue of Newsweek. "But depend upon it: you've been fleeced."

- The fight against mutual holding companies has moved into the courts. In September 1999, a judge issued a permanent injunction against Provident Mutual's proposed plan. In October 1999, a class action lawsuit was filed against National Life of Vermont. Both plans had been approved by policyholders, most of whom probably didn't understand what they were voting for.

- Advocates and critics of mutual holding companies should read Peter Coy's commentary on tracking stocks ("Tracking Stocks are Accidents Waiting to Happen") in the August 2, 1999 issue of Business Week. Substitute "mutual holding companies" for "tracking stocks" and see you what think.

- In the May 1999 issue of The Insurance Forum, professor emeritus Joseph M. Belth raises questions about the fairness of Standard Insurance Company's demutualization plan. The formulas used to allocate shares of stock among policyholders have been judged to be "fair and equitable" by two actuarial consulting firms and the Oregon insurance commissioner, but the results for a sample of policies are hard to understand. The same questions probably apply to other companies' demutualization plans. You can obtain the article for $200 by calling 888-876-9590. (4/21/99)

- The Consumer Federation of America is concerned that some policyholders will not be treated fairly in demutualizations. In a letter to state insurance commissioners, CFA gives examples of seemingly unfair treatment and raises questions for commissioners to consider when they review demutualization plans. (3/31/99)

- Advocates of mutual holding companies got some good news in IRS Revenue Ruling 99-3. The IRS has decided that stock life insurance subsidiaries of MHCs will be able to deduct all policyholder dividends, without the reduction that applies to mutual companies (per IRC Sections 808 and 809). In some cases, it could make sense for a mutual insurer to convert to a mutual holding company structure solely for tax savings, even if it had no intention of ever issuing stock to outside investors.

- AmerUs, the first life insurance company to restructure as a mutual holding company, is the subject of a front-page article in the December 1, 1998 Wall Street Journal. This article describes what happens when you combine the MHC concept with executives who can rationalize why everything they do is good for policyholders.

- In the November 1998 issue of Consumer Reports, Consumers Union joins other consumer groups in declaring that the mutual holding company approach to reorganization is the least fair alternative for policyholders.

- In August 1998, the Canadian Department of Finance released proposed regulations to facilitate the demutualization of its largest mutual insurers. The Canadian view is that mutual holding company conversions do not treat policyholders fairly, so that option will not be allowed. A white paper provides details. Final legislation was approved in March 1999.

- In June 1998, the New York State Assembly rejected Gov. Pataki's proposed legislation to allow mutual holding companies. The current law allows only full demutualizations. The proposed law had many critics, including major consumer groups and the AARP. In July 1999, Gov. Pataki reintroduced similar legislation.

- Full demutualization wins a straw poll. At a panel discussion sponsored by the New York Chapter of the American Society of CLU & ChFC, seven participants debated the merits of mutual holding companies. After three hours of presentations by a regulator, a consumer advocate, and representatives of mutual and stock companies, the moderator asked the audience of several hundred to vote on full demutualization versus MHCs. Full demutualization won by a landslide, although a sizable minority would have preferred a third option of remaining purely mutual. Only a few people voted for MHCs. (6/3/98)

- An editorial in the June 1, 1998 issue of the National Underwriter, a widely-read insurance publication, gets to the heart of the debate about reorganization strategies. "The one thing that mutual holding company advocates have not yet done," it says, "is spell out exactly why their preferred option is better for policyholders than full demutualization." A reply from New York Life's Sy Sternberg is in the June 15 issue.

- A May 1998 report by Moody's Investors Service offers a mixed view of the benefits and risks of mutual holding companies. Contrary to what mutual company executives have been telling their policyholders, Moody's believes that a company's credit quality might be adversely affected by pressures to improve the bottom line to satisfy equity investors. The full report, "March of the Mutuals — A Rapidly Evolving World", is available online.