Demutualization Tops Agenda at Insurance Forum

By Kimelman, John | American Banker, October 12, 1998 | Go to article overview

Demutualization Tops Agenda at Insurance Forum


Kimelman, John, American Banker


This is the dawning of the age of financial services convergence. But you'd never know it by attending an insurance conference.

Last week, insurers and a larger crowd of investment bankers and merger and acquisition lawyers gathered at a resort hotel here to talk mostly about demutualization, a front-burner topic in the industry.

Demutualization is the process by which policyholder-owned companies, or mutuals, convert themselves into stock-issuing entities that can raise capital from the public markets. (Thrifts have undergone this process for the past two decades.)

The point of all this is to gain the currency necessary to buy other companies. And in recent years, insurers, like commercial banks, have realized that the only way to generate significant revenue growth in an industry devoid of meaningful top-line growth is to make acquisitions.

One might think that insurers would be talking more about the benefits of coupling with banks, mutual fund companies, brokerages, and other noninsurance companies.

After all, Citicorp and Travelers Group have merged to form Citigroup, offering banking, insurance, and other financial services. And a federal law letting banks and insurers enter each others' businesses is looming as a distinct possibility in the next year or two.

Even small regional banks have shown a willingness to buy small securities firms and insurance agencies in an effort to diversify their asset bases and invest in higher-growth businesses than their own.

But insurers, except for the large multiline carriers, tend to focus inward. Most of the discussion at the conference sponsored by the Strategic Research Institute focused on ways in which insurers can alter their corporate structures, generate some "acquisition currency," and buy each other. …

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