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What is
demutualization?
A demutualization is the conversion of a mutual insurance company,
that is owned by its policyholders, into a stock company, that is
owned by shareholders. The insurance company continues to exist,
but its corporate formation and ownership are altered. Eligible
policyholders exchange their ownership rights in the mutual life
insurance company for common shares of the new company and rights
consistent with those of a typical publicly-owned company. Shares
are also usually offered to other investors in an initial public
offering (IPO). But your policy rights are not affected—you
still retain your policy and its associated “contract”
rights. Demutualization does not affect your policy benefits
or affect your policy premiums.
How
and why did this happen?
The management of the insurance company determined that the company’s
policyholder interests would be best served by converting from a
mutual to a stock company. They proposed a “Plan of Demutualization”
that was approved by both a majority of policyholders and by insurance
regulators in the insurance company’s home state.
What
happened to the insurance policy?
Your policy was not affected by the demutualization.
The demutualization impacted only the policyholder’s “member”
rights in the mutual company; it did not change any policy, or contract
rights. The distribution of cash or securities from the demutualization
does not reduce the cash value or coverage of the policy, nor would
it result in cancellation. Neither will it increase any premiums.
You will also still be eligible to receive any policy dividends
(also referred to as “bonuses” in some jurisdictions)
as declared by the Board of the new company. Special arrangements
have been made to protect the reasonable expectations of eligible
policyholders concerning future policy dividends and other non-guaranteed
benefits.
Note, however, that subsequent to the demutualization, the policy
could have lapsed (through non-payment of premiums) or matured (through
death of the insured). If you have questions concerning that
status of the policy, contact the insurance company directly. (See
"Useful Telephone Numbers"
link at left.)
Why
am I entitled to this property?
As the owner of a policy (policyholder) in a mutual company, you
are entitled by law to receive a distribution of the company’s
net worth (or surplus) upon the company’s conversion. In general,
you are the owner of the policy if the policy was issued to you.
Your insurance company engaged actuaries and statisticians (experts
in the field) to determine the fair and equitable amount to be paid
to each policyholder, and these determinations were then approved
by a vote of all policyholders and regulators. Different policyholders
received different amounts of compensation, dependent upon various
factors, such as policy value, premiums paid, etc. All eligible
policyholders received some amount of compensation.
Did
all policyholders receive compensation?
Each Plan of Demutualization defined which policies entitled the
policyholder to compensation. “Eligible” policies would
include those policies in force as of a certain date (typically,
the date of demutualization) and whose contract terms entitled the
policyholder to any surplus if the insurance company demutualized.
In addition, an eligible policy is one that has not lapsed because
of non-payment of premiums, matured because of death or other reason,
or otherwise been surrendered or terminated. In some instances,
the Plan of Demutualization included, or excluded, other types of
policies.
What
determined whether I would receive stock or cash?
The Plan of Demutualization prescribed which policyholders received
cash, and which received stock. In some instances, policyholders
instead receive “enhanced policy benefits”, such as
additional paid up insurance.
What
are the tax consequences of a demutualization?
While the state cannot provide tax advice, which should be obtained
from a qualified professional, demutualized insurance companies
have uniformly stated that the receipt of cash from a demutualization
(as well as the eventual sale of stock received in a demutualization)
constitutes a taxable event. The Internal Revenue Service has held
that the taxable basis for demutualization compensation is zero.
Thus, the receipt of cash may be taxable, and if you sell any stock
received, the cash proceeds may be taxable.
Neither
I nor anyone in my family ever bought stock … how am I listed
as owning shares of some company?
Because your mutual ownership rights have converted to the right
to receive stock in a newly formed company, consistent with the
terms of an approved plan of “demutualization” of the
mutual insurance company.
I
(or a family member) was listed in the paper as having unclaimed
property. I (he/she) had a life insurance policy in one insurance
company, but the listing is for unclaimed shares of stock in that
company. Could it be the same thing?
Yes, it could. You should fill out a claim form from the web site
of the state from which you are reclaiming and mail it as directed,
or contact a customer service representative at the unclaimed property
claims department of that state.
Do
all mutual insurance companies convert to stock companies? Why did
they start doing this?
No, not all insurance companies see the need to do this. This is
done because management feels it is in the best long-term interest
of the company and the policyholders.
What
happens if my original insurance company has undergone changes (i.e.,
has merged, or has been bought out, etc)?
If your name is on this list, chances are your insurance company
has become part of an insurance company that has eventually demutualized.
You should also take this opportunity to update your records with
any other insurance carriers you have policies with.
If
I had an insurance policy with ABC company, and it demutualized,
how did the resulting demutualization proceeds end up in the abandoned
property office of the state?
Every state has laws that determine what should happen to property
whose owner cannot be located and with whom no communication has
been recorded for a prescribed amount of time. After the prescribed
amount of time, generally three to seven years, the state must take
custody of it for safekeeping until you can be located or come forward
to claim it.
As
a policyholder, how was I unaware about this so-called demutualization
process? I thought my policy was fine just like it was.
Your policy was not affected by the demutualization. The demutualization
impacted only the policyholder’s “member” rights
in the mutual company; it did not change any policy, or contract rights.
The distribution of cash or securities from the demutualization would
not have reduced the cash value or coverage of the policy, nor would
it result in cancellation. Note, however, that subsequent to the demutualization,
the policy could have lapsed for other reasons such as non-payment
of premiums or matured because of death of the insured. If you have
questions concerning the status of the policy, contact the insurance
company directly. See "Useful
Telephone Numbers" for schedule of demutualized insurance
company phone numbers.
Where
is my property being held?
It is held at the unclaimed property division of the state of the
last known address on record at the demutualized insurance company.
Can
I claim back these proceeds at any time, are there deadlines to
follow?
This property is yours and so can be claimed at any time. Of course,
we recommend that you begin the claims process right away in order
to receive your property.
How
long will it take to get my property back?
This depends upon several factors, such as type of property and complexity
of claim. Many states attempt to make a decision to approve, deny,
or request more information within 90 days.
I
was unaware that I had this stock. Without a stock certificate,
how do I prove that those assets are mine? What documentation will
I need?
You will not need a stock certificate to recover your property.
What will be needed will differ from claimant to claimant.
The
unclaimed stock being held in my mother’s name has no social
security number on the policy and I don’t have any record
of my family member living at the last address listed – what
other information can I provide?
Call our customer service representative, who can help you determine
what substitute documentation can be accepted to substantiate your
claim.
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