[M130]

mutual holding companies

Mutual insurance companies cannot sell stock to increase investment capital. Mutual insurance companies can demutualize, but this can be expensive because policyholders have to be paid for their ownership interest. With a mutual holding company, two things happen. First, a new mutual company is established as a holding company. The existing mutual company is converted to a stock company which then becomes a wholly owned subsidiary of the mutual holding company. Policyholders retain ownership interests in both the mutual holding company and the stock company, but the stock company is now responsible for the contract rights. The stock company may sell stock to raise capital, but the mutual holding company policyholders still maintain their membership rights including the return of value for loss of ownership interest should the mutual holding company ever be demutualized.

(See demutualization).