Financial-Reform Bill Amendment Revives Mutual Holding Company Debate.

OLDWICK, N.J.--(BUSINESS WIRE)--July 20, 1999--

The financial-services modernization bill recently approved by the House of Representatives has reignited the insurance industry's debate over mutual holding companies, according to an article in the July 19 edition of BestWeek.

An amendment added to the legislation by Rep. Tom Bliley, R-Va., would allow mutual insurers--which are owned by policyholders--to relocate to states that

permit the formation of mutual holding companies. A mutual holding company is a corporate structure that enables the companies to sell stock up to a 49% stake without passing the proceeds to policyholders. This differs from a full demutualization, in which a company becomes shareholder owned and the policyholders' ownership interest is converted into equity shares. A minority of states--22--permit the formation of mutual holding companies.

David Schiff, publisher of Schiff's Insurance Observer and a critic of the mutual holding company structure, said most states prohibit the mutual holding companies, in part, because the management of such companies get the benefit of stock options without the responsibility of answering to shareholders with a controlling interest. He said the Bliley amendment would encourage mutuals to move to states with the least-stringent regulation--a kind of "race to the bottom."

Chuck Chamness, a spokesman for the National Association of Mutual Insurance Companies, rejected that idea. He told BestWeek that states concerned about losing mutual insurers could establish their own mutual holding company laws--with stricter standards--which would prevent mutual insurers from leaving the state. An insurer could only make use of the Bliley amendment if its current state of domicile did not permit mutual holding companies.

Larry Mayewski, senior vice president in A.M. Best's life/health division, said passage of financial-reform legislation that includes the Bliley amendment would not likely lead to a sudden exodus of mutual insurers to other states.

Mr. Mayewski said the clause "might be used more as a threat to force states to expedite enactment of mutual holding company laws, although with stricter provisions, but that doesn't mean we'll suddenly see a lot of companies forming holding companies. Wall Street has a hard enough time explaining to investors why they should own an insurance stock, let alone an insurance stock with limited public ownership."

BestWeek is published by A.M. Best Co. The article--titled "Amendment Resurrects Mutual Holding Debate"--can be read on the Internet at http://www.bestweek.com/issue-lh.

A.M. Best Co., established in 1899, is America's oldest and most widely recognized insurance ratings and information source. For more information, visit the company's Web site at www.ambest.com.