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


  • 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.”


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.