Anatomy of a Demutualization

Anatomy of a Demutualization
Monday, November 15, 2010
R. Dale Hall, FSA, CERA, MAAA, CFA
Vice President & Chief Actuary, Life/Health Operations
COUNTRY Financial
Backdrop to the story…
• Geographic expansion
• Alliance partnership with Mutual
Service Insurance companies,
circa 2002
• Transition of Property/Casualty
writings to COUNTRY Mutual
• Decision point for Mutual Service
Life Insurance Company
Structures and History
• Stock / Mutual / Fraternal
– Sponsored Demutualization
– Full Demutualization
– Conversion to Mutual Holding Company structure
• Activity in 1990’s
– Large mutuals desired a better ability to raise capital
– Moved forward: Prudential, Metropolitan Life, MoNY
– Stayed the same: NML, Mass Mutual, NY Life, Pacific
Sponsored Demutualization of MSL
• Minnesota Code 60A.075 (now
Plan of Conversion
Notice to Members
Voting and Proxies
Articles of Incorporation
Basis for determining distributable net worth
Independent evaluation of net worth
Independent actuarial opinion on fairness
Plan of Conversion
• Date of Record to establish
eligibility of members
• Description of how total
consideration to be paid
• Protection of reasonable future
dividend expectations
Key Actuarial Items (Page 1)
• Determining purchase price to
determine total distributable
– Actuarial Appraisal process
– Comparable recent transactions
• Purchase price (~$45M)
Key Actuarial Items (Page 2)
• Determining equitable process to
– Review of historical earnings to get to current
– Fixed and Variable components of compensation
– Variable compensation based on
• line of business
• age of policy (or eras policy survived)
• size of policy
Key Actuarial Items (Page 3)
• How to distribute the amounts to
– Cash?
– Addition to current account values?
Key Actuarial Items (Page 4)
• Dividend Protection
– Closed Block?
– Dividend Protection Mechanism
• Work with Insurance Commissioner to
ensure appropriate methods used
• Annual review
• Public Hearing, November 2004
– Company and Independent Evaluation
– Policyholder testimony
• Approval in early 2005
Final Formal Steps
• Member approval in 2005
• MSLIC becomes a stock company,
wholly owned by COUNTRY Life
Insurance Company
• All done??
Next Steps
• Not done….. desire Merger of MSLIC into CLIC
• Section 60A.16 of Minnesota Law
• Create Plan of Merger
• Residual issues with other states
• MSLIC merged into CLIC, November 2007