A number of major insurance companies are undergoing a process called demutualization.
Under demutualization, the company converts from a mutual company owned by its policyholders
to a stock company owned by stockholders. Generally, demutualization is done by life
insurance companies, but a company that is primarily a health insurance company may
also demutualize. A mutual insurance company may also convert to a stock insurance
company that is owned by a mutual holding company. In contrast to full demutualization,
these policyholders usually do not receive compensation such as stock or cash. In
some cases, however, full demutualization occurs before the holding company is established,
and compensation is paid to policyholders.
As part of demutualization, the insurance company issues shares of stock or cash to
its policyholders to compensate them for the loss of certain ownership rights. The
amount of compensation is determined by the insurance company and is related to the
value of the insurance policies owned by the policyholders.