Massachusetts Democrats are calling for a one-year moratorium on Liberty Mutual's plan to convert to a mutual holding company, expressing concern over policyholders' stake in the deal. Proposed legislation would impose the moratorium while the state conducts a study of mutual holding company conversions to determine their effect on policyholders.

Liberty Mutual currently is a mutual insurance company, fully owned by its two million policyholders. Under the mutual holding company structure, Liberty Mutual would form a parent company to three subsidiaries — Liberty Mutual, Liberty Mutual Fire, and Wausau Employers Insurance. Although mutual holding companies have the option of going public, Liberty Mutual says it has no IPO plans and is not contemplating a full demutualization.

The Democratic State Committee voted to support the proposed legislation after an analysis by the non-profit Center for Insurance Research (CIR) estimated that Massachusetts policyholders would be out $1 billion under the mutual holding company plan. If Liberty Mutual demutualized, the company's full value would return to policyholders, about $2,800 each or $5.2 billion nationwide, according to the CIR's estimate.

Liberty Mutual has done no calculations regarding policyholder remuneration because demutualization is not in its future, says Paul Mattera, senior vice president at Liberty Mutual.

"The assumption made is tantamount to saying that all mutual companies ought to demutualize, because somehow that's the only way that policyholders derive economic value," Mattera says. "[Liberty Mutual] will remain mutual after we convert to a mutual holding company structure, so the economic analysis is of no great weight."

While the outcome of the proposed one-year study of mutual holding companies could end in a legislative ban on the structure, Democrats say that is not their aim. Two years ago, the legislature passed the bill that allowed mutual insurers to become mutual holding companies.

"We're not arguing against the conversion specifically," says Phil Johnston, state Democratic party chair. "We're saying that we don't want the money that accrues from the conversion to go to a small group of executives, we want to make sure the consumers who bought policies receive their fair share."

Johnston says Democrats fear the mutual holding company structure withholds money from Massachusetts policyholders that could benefit the state's economy. Liberty Mutual contends that argument is flawed because as a mutual holding company it will more easily grow through acquisition, allowing it to increase its job and salary base in Massachusetts.

"Organic growth is hard to come by," Mattera says. "The conversion to a mutual holding company gives us more opportunity to acquire companies and better position us in the industry, and thus to grow within Massachusetts."

Liberty Mutual is Massachusetts' largest workers compensation insurer, with 12 percent of the market, and writes 7 percent of auto insurance and 5 percent of homeowners insurance in the state.