Liberty Mutual unveils mutual holding company conversion plan
Seeking to streamline operations with an eye toward raising future capital, Liberty Mutual Group plans to convert to a mutual holding company.
|While Liberty Mutual does not have any plans for an initial public offering, the reorganization will allow it to sell stock in the future.|
Liberty Mutual is a mutual insurance company, meaning that it is owned by policyholders. A mutual holding company serves as a parent company to a number of subsidiaries. Ownership of the subsidiaries, in turn, is generally split between the mutual holding company and outside investors, with the mutual holding company always maintaining majority control, usually just over 50 percent.
Based in Boston, Liberty Mutual sells mostly workers' compensation insurance. It also sells homeowners insurance and auto insurance to individuals and businesses. The insurer announced its plan to convert to a mutual holding company in late September.
Liberty Mutual's conversion plan has been filed with the Massachusetts and Wisconsin insurance departments for approval. The plan calls for the creation of three stock insurance companies, an intermediate stock holding company, and a mutual holding company. The mutual holding company will be entirely owned by policyholders. The stock insurance companies will be named Liberty Mutual Insurance Co., Employers Insurance of Wausau, and Liberty Mutual Fire Insurance Co.
Liberty Mutual says it is converting to a mutual holding company to combat increased competition from foreign insurers, stock insurers and financial services companies that are more flexible. According to a "fact sheet" the insurer has released about the conversion plan, Liberty Mutual says the new structure will offer three benefits:
- A more efficient structure: Liberty Mutual says the reorganization will result in "more streamlined, efficient governance and administration processes" while preserving the brands of the stock companies within the new structure.
- Its mutuality will be maintained: The new structure will allow policyholders to retain an interest in the company. Although the subsidiaries will be able to issue stock, policyholders will still maintain ownership of the mutual holding company.
- Greater flexibility: The conversion will allow Liberty Mutual to raise cash by selling shares of stock to the public. While Liberty Mutual does not have any plans for an initial public offering (IPO), the reorganization will allow it to sell stock in the future. "Since reorganization takes considerable time, reorganizing now eliminates the potential for delay in accessing equity markets should the need arise in the future," the fact sheet says.
Liberty Mutual needs approval from policyholders and state insurance departments in Massachusetts and Wisconsin. Policyholders will receive information packets in November about the planned conversion and the upcoming policyholders' vote. If approvals are received on schedule, Liberty Mutual expects the conversion to be completed by June 2001.
Liberty Mutual says existing policies will not be affected and premiums will not be increased. The insurer will continue to pay dividends on insurance policies if it has better-than-anticipated financial results in a given year.