Conning Research: Wave Of Demutualization Causes Few Ripples For Life Insurers

Collective performance of insurers who recently went public lagged that of competitors

March, 2003 – (Hartford, CT) A decade’s worth of demutualization in the life insurance industry has actually changed very little other than the companies’ organizational structure, according to a new study by Conning Research & Consulting, Inc.

The study, “Life Insurance Demutualization – An Interim Report Card,” found that while supporting arguments are persuasive for the benefits of turning private life insurers into public entities, Conning cautions that people, processes, and technology are not necessarily changed, nor are products or distributors.

“In fact, based on nearly all of its financial metrics, Conning found that the collective performance of the recently demutualized insurers lagged that of the other life ‘universes’ we examined,” said Michael Weinstein, Director of Research, Conning Research & Consulting.

Prudential’s demutualization late in 2001 completed the latest round of life insurer demutualizations. For the first time in years, the demutualization pipeline is now empty. Now that a significant portion of the industry has converted to publicly traded companies, Conning Research & Consulting set out to determine if the stated objectives had been achieved.

“Arguments supporting demutualization are based on two hypotheses,” said Weinstein. “First, it is argued that demutualization enables life insurers to access the capital markets more easily. They can secure funds for either offensive or defensive reasons. That is, they can access the capital markets to support growth or strengthen impaired capital positions. A related argument is that demutualization enables life insurers to achieve and maintain a more efficient capital structure – for example, through stock repurchases.”

“Second, demutualization was expected to increase public scrutiny and enable life insurers to use their stock to attract and motivate the best leaders and life insurance professionals,” said Weinstein. “Rhetoric supporting demutualization promises greater growth and profitability as a result.”

In the study, Conning analyzed capital market and M&A transactions to assess whether demutualization rhetoric is supported by reality. Conning found that recently demutualized life insurers have infrequently accessed the capital markets and have participated minimally in M&A. Conning reasons that sagging industry fundamentals and numerous challenges may have forced life insurers to be more cautious.

To test the degree to which demutualization improved growth and profitability, Conning compared the results achieved by companies in its three life insurer universes: Mutual, Mutual Holding Company, and Demutualized. Interestingly, its analysis demonstrates that, overall, organizational structure is not a differentiating factor.

Conning also found that the equity markets carefully evaluate the financial performance of demutualizing insurers – both pre- and post-demutualization – a factor that it believes may have a significant influence on future life insurer demutualizations.

As a result of this work, and given the high expense in terms of dollars and time associated with the demutualiztion process, Conning expects greater scrutiny going forward by potential investors in future demutualizations.

“Life Insurance Demutualization – An Interim Report Card,” is available from Conning Research & Consulting, Inc., by calling toll free (888) 707-1177 or (860) 520-1521. A complete listing of all Conning research products can also be found by visiting the company’s Web site at

About Conning Research & Consulting

The Conning name has represented excellence in independent insurance industry research for more than 90 years. As a result of its wealth of experience and intimate knowledge of the insurance industry, Conning understands industry challenges and opportunities and can provide in-depth insights and analyses. Conning provides both public and proprietary research as well as consulting services to the financial services industry. Conning has offices in New York and Hartford.