The Demise of the Mutual Organizational Form: An Investigation of the Life Insurance Industry

We investigate the role of organizational structure in financial services markets by examining the U. S. life insurance industry. Traditionally, stock and mutual life insurers were equally represented, but now the industry is mainly composed of stock firms. We find operational efficiency, access to...

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Published inJournal of money, credit and banking Vol. 42; no. 6; pp. 1011 - 1036
Main Authors ERHEMJAMTS, OTGONTSETSEG, LEVERTY, J. TYLER
Format Journal Article
LanguageEnglish
Published Malden, USA Blackwell Publishing Inc 01.09.2010
Wiley Periodicals Incorporated
Ohio State University Press
Subjects
Capital
Cost efficiency
Credit insurance
Demutualization
Efficiency
Financial services
G22
G34
Group life insurance
Industrial efficiency
Insurance
Insurance industry
Insurance premiums
Insurance providers
Life insurance
Life insurance companies
organizational form
Organizational research
Organizational structure
Policyholders
Production efficiency
Studies
tax
U.S.A
United States > US
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Summary:We investigate the role of organizational structure in financial services markets by examining the U. S. life insurance industry. Traditionally, stock and mutual life insurers were equally represented, but now the industry is mainly composed of stock firms. We find operational efficiency, access to capital, and tax savings are important determinants for this shift. The incentive to demutualize differs by the type of conversion: full demutualization is chosen for efficiency and access to capital reasons and partial conversion, using a mutual holding company, is chosen for tax savings. Firm operational efficiency improves after conversion. We also find the efficiency of the stock organizational form dominates that of the mutual structure during our sample period, 1995 to 2004.
Bibliography:istex:6FED68364EF078FE26D83E6BA23F41E685777BBF
ark:/67375/WNG-GWB9MP6H-1
ArticleID:JMCB318
We are grateful to John Aschenbrenner, Martin Grace, Andre Liebenberg, Deborah Lucas (the Editor), Richard Phillips, Puneet Prakash, Husayn Shahrur, James Smallenberger, Therese Vaughan, Anand Vijh, Steven Weisbart, two anonymous referees, and participants at the 2006 American Risk and Insurance Association meetings and the 2007 Financial Management Association meetings for their helpful comments and suggestions. An earlier version of the paper was circulated under the title “Efficiency Changes around US Life Insurer Demutualizations.”
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ISSN:0022-2879
1538-4616
DOI:10.1111/j.1538-4616.2010.00318.x