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Demutualization is the process by which a customer-owned mutual society.

The mutual traditionally raises

  • The Feeling's Not Mutual An Analysis of Governor Pataki’s Proposed Mutual Holding Company Legislation (New York State Assembly, 1998)
  • Reorganization Status of Mutual Life Insurance Companies (USA)
  • Co-operative Issues – Demutualisation – International Co-operative Alliance
  • – Analysis after the last of the UK's demutualized building societies lost its independence
  • [1] How the nation's largest mutual life insurers - MetLife, New York Life, Principal Mutual and others - attempted to make off with $100 billion of policyholders' money by creating "Mutual Holding Companies". And how they were stopped.

External links

  • John W. Carson, Conflicts of Interest in Self-Regulation
  • Andreas M. Fleckner, Stock Exchanges at the Crossroads


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  5. ^ Reena Aggarwal of Georgetown University, Demutualization and Corporate Governance of Stock Exchanges, Journal of Applied Corporate Finance, Vol 15, No 1, Spring 2002, p. 105ff, accessed 16 July 2012
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  7. ^ CBOT - Organizational Profile
  8. ^ SFC Annual Report 2000-2001
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See also

Irish grocer-owned retailers' cooperative, ADM Londis, changed its capital structure in 2004 to an unlisted public limited company, allowing its owners to trade its stock privately at market value.

Retailers' co-operatives

As well as the many agricultural supply cooperatives that demutualized, a small number of general retail consumer's cooperatives have demutualized or considered demutualization. In 1997, Andrew Regan launched an unsuccessful hostile takeover bid to demutualize the UK's giant Co-operative Wholesale Society, which, despite its name, was a large retailer in its own right. In 2007, the tiny Scottish retailer, Musselburgh and Fisherrow Co-operative Society, completed most or all of the steps necessary to demutualize. In 2008, a Swiss competition regulator recommended demutualization to Switzerland's leading supermarket chains, Coop and Migros.[14]

Retail consumers' cooperatives

The UK motorists' organization, The Automobile Association, demutualized and was purchased by Centrica plc in 1999. The sale was completed in July 2000 for £1.1 billion.

Membership associations

A Abbey National, the second largest, in 1989, and including the Halifax Building Society, the largest, soon converted into joint stock banking companies, some of which were subsequently acquired by other banks. Many societies soon became targets of speculative "carpetbaggers", who opened savings accounts in order to obtain a windfall, in cash or shares, in the event of demutualization. Most of the remaining societies, such as the Nationwide Building Society, the largest remaining mutual, adopted poison pill clauses in their rules as a defense against carpetbaggers. These took the form of a charitable assignment provision that requires new members to assign any compensation from demutualization to charity.[13]

Building societies

Another large example is Kerry Co-op of Ireland, a milk and meat processor that demutualized in 1986, compensating its farmer members, and became the publicly traded Kerry Group.[12]

Numerous agricultural supply and marketing cooperatives have demutualized. One of the largest, CF Industries, a manufacturer and distributor of fertilizers in the United States, was for 56 years a cooperative federation. CF then demutualized and made an initial public offering of equity stock in 2005.[11]

Agricultural cooperatives

The boards of directors of other mutual companies, which include Northwestern Mutual, Massachusetts Mutual, New York Life, Pacific Life, Penn Mutual, Guardian Life, Minnesota Life, Ohio National Life, National Life of Vermont, Union Central Life, Acacia life, and Ameritas Life decided to either remain mutual or they decided to form mutual insurance holding companies. At the end of 2006 there were fewer than 80 mutual life insurers in the United States. Some of these mutual companies award dividends to their policyowners. For example, Northwestern Mutual expects to pay more than $5 billion in dividends to participating policyowners in 2008. Northwestern Mutual has paid its policyowners more than $65 billion in dividends, since the company was founded 151 years ago.[9] Mass Mutual Financial Group's Web site defines life insurance policy dividends.[10]

Over 200 US mutual life insurance companies have demutualized since 1930. At the end of the 20th century and beginning of the 21st century numerous large mutuals such as Prudential, MetLife, John Hancock, Mutual of New York, Manulife, Sun Life, Principal, and Phoenix Mutual decided to demutualize and return to policyowners all the profits they had accumulated as mutual life insurers. Policyowners were awarded cash, stock and policy credits exceeding $100 billion in a wave of demutualizations, which have been regarded by some as very rewarding to the new owners although the effect on customers is not discussed. Others show that the demutualization process is detrimental to customers.[2]

Life insurers

SIX Swiss Exchange AG.

The Chicago Board of Trade similarly carried out an IPO in 2005, having previously been "... a self-governing, self-regulated Delaware not-for-profit, non-stock corporation that serves individuals and member firms."[7] The Hong Kong Exchange underwent similar process of demutualization and was publicly traded.[8]

The Stockholm Stock Exchange was the first exchange to demutualize in 1993, followed by Helsinki (1995), Copenhagen (1996), Amsterdam (1997), the Australian Exchange (1998) and Toronto, Hong Kong and London Stock Exchanges in 2000.[5] The exchange or commodities exchange to demutualize into a joint stock corporation.[6] The Chicago Mercantile Exchange had its IPO on December 6, 2002.

Security exchanges


Note that some mutual companies, such as Nationwide Mutual Insurance Company and the MassMutual, have owned stock companies listed on a stock exchange. Nationwide bought back its subsidiary stock company in full, on December 31, 2008.[4] These are not MHCs, however; they are simply mutual companies which have majority control over one or more stock companies. Other mutual companies may own some of another company's stock, but as simply an asset, not something they actually control. Finally, many mutual companies, including Nationwide and MassMutual, have wholly owned subsidiaries. The subsidiaries may technically be stock companies, but the mutual owns all the stock. For example, the New York Life Insurance and Annuity Corporation (NYLIAC) is a wholly owned subsidiary of the New York Life Insurance Company (NYLIC). A person may purchase an insurance policy from either company, but only those who own participating policies from NYLIC are mutual members. Other policyholders are customers.

Some MHC demutualizations have been planned as the first of a two-stage process. The second stage would be full demutualization once the transition pains into MHC status are complete. In other cases, the MHC is the final stage.

Mutual holding companies are not allowed in New York where attempts by mutual insurance to pass permissible legislation failed. Opponents of mutual insurance holding companies referred to the establishment of mutual holding companies in New York as "Legalized Theft".

  • A mutual holding company is a hybrid concept, part stock company and part mutual company. Technically, the members still own over 50% of the company as a whole. Because of this, they are generally not significantly compensated for what would otherwise be viewed as loss of property. (This is also why many jurisdictions, including Canada,[3] disallow the formation of MHCs.) The core participants are isolated into a special segment of the company, still viewed as "mutual". The rest is a stock company. This part of the business might be publicly traded, or held as a wholly owned subsidiary until such time that the organization should choose to go public.
  • A sponsored demutualization is similar; the mutual is fully demutualized and its policyholders or members are compensated. The difference is that the mutuality is essentially bought by a stock corporation. Instead of receiving stock in the formerly mutual company, stock in the new parent company is granted instead.
  • In a full demutualization, the mutual completely converts to a stock company, and passes on its own (newly issued) stock, cash, and/or policy credits to the members or policyholders. No attempt is made to preserve mutuality in any form. However, in a full demutualization of a mutual savings bank, stock is issued to investors in the initial public offering, and the depositors, who theoretically owned the bank before demutualization, receive no stock unless they invest in the initial public offering.

There are three general methods in which an organization might demutualize, full demutualization, sponsored demutualization, and into a mutual holding company (MHC). In any type of demutualization, insurance policies, outstanding loans, etc., are not directly affected by the organization's change of legal form.

Types of demutualizations


  • Types of demutualizations 1
  • Examples 2
    • Security exchanges 2.1
    • Life insurers 2.2
    • Agricultural cooperatives 2.3
    • Building societies 2.4
    • Membership associations 2.5
    • Retail consumers' cooperatives 2.6
    • Retailers' co-operatives 2.7
  • See also 3
  • References 4
  • Notes 5
  • External links 6


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