Form Over Matter: Differences in the Incentives to Convert Using Full Versus Partial Demutualization in the U.S. Life Insurance Industry |
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| Authors: | Otgontsetseg Erhemjamts Richard D Phillips |
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| Institution: | 1. Otgontsetseg Erhemjamts is an Assistant Professor in the Department of Finance, Bentley University;2. Richard D. Phillips is the C.V. Starr Professor of Risk Management and Insurance at the Robinson College of Business, Georgia State University. |
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| Abstract: | We explore the recent wave of demutualizations in the U.S. life insurance industry and analyze if the motives were similar for mutual life insurers that fully demutualized versus those that converted to mutual holding company (MHC) form. We find that fully demutualizing insurers were primarily motivated by a desire to gain access to external capital markets while those that chose MHC were motivated by other incentives including a tax‐based incentive. We also document that after conversion, fully demutualizing insurers more aggressively increase their exposure to risks they have a comparative advantage to bear than do firms that convert to MHC. |
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