New Developments in Demutualization Among Life Insurers in the U.S. and U.K.

Hiroshi Matsuoka

Introduction

The main points of the recently revised Insurance Business Law concern bankruptcy procedures for life insurance companies and stipulations for demutualization (conversion to stock company). The mutual company is a form of organization unique to the insurance industry wherein participating poli-cyholders (those with membership rights) own the company instead of stockholders. Major decisions for the company are decided at a general meeting of members (or in Japan’s case， of representatives chosen by the members). Most life insurance companies in Japan are mutual companies.

In line with a growing trend in other countries， the revised law makes demutualization — the conver-sion of a mutual company into a stock company — a more viable alternative for mutual companies in Japan. In fact， Daido Life has already set up a working level team to complete demutualization and carry out an initial public offering by April 2002.

Overseas， demutualization has been accelerating， particularly in the United States， United Kingdom， and Canada. In Canada， four of the top five life insurers who had not already demutualized did so from the second half of last year to this March. In the U.S.， the second and thirteenth largest mutuals in assets under management completed their demutualization this year， while the largest mutual company is currently undergoing demutualization. In the U.K.， major mutual life insurer Scottish Widows is demutualizing in preparation for joining the Lloyds TSB group. A new development of growing inter-est is the rise of members’ groups calling for demutualization.

In this paper， we examine two demutualization cases thought to be particularly relevant to Japan — MetLife in the U.S. and Standard Life in the U.K. Both are second ranking in their respective markets， and offer interesting implications.