The Demise of the Mutual Organizational Form: An Investigation of the Life Insurance Industry
Journal of Money, Credit and Banking, Forthcoming
40 Pages Posted: 26 Feb 2010
Date Written: February 24, 2010
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 comprised 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.
Keywords: Insurance, Organizational Form, Demutualization, Efficiency, Tax
JEL Classification: G2, G22, G34, L2
Suggested Citation: Suggested Citation