The insurance industry is, regardless of its product, is organized under two basic corporate structures. One is a stock company, the other is a mutual company. A stock insurance company is owned by its shareholders. A mutual insurance company has no shareholders and is instead owned by its policyholders. At the end of 1999, 1470 life insurance companies were in the United States. Although mutual companies account for only 106 of the 1470 life insurance companies(7% of the total), they accounted for 21% of the total insurance assets, 17% of premium income, and 36% of life insurance in force. Since 1996, some mutual life insurance companies have either completed or announced plans to reorganize into a different corporate structure. One might wonder why changing the corporate structure has become attractive to mutually owned companies in recent years. The answer to this question lies in the dynamics of the financial services industry in which the life insurance is a part. Demutualization and smaller firms`` competitive shortcomings ensure that the trend towards consolidation and convergence will continue in the coming years. Many mutual life insurance companies see themselves as significantly handicapped in competition against their larger and more diverse publicly-held stock competitors. Mutual life insurers have no authority to issue shares of capital stock and consequently have limited access to market sources of permanent equity capital. A mutual company can raise capital, primarily, only through generating and retaining earnings. There are sizeable risk-based capital requirements and other significant regulatory controls and restrictions for mutual insurance company to acquire a subsidiary company, depending on the size of the acquisition. At least five merits drive the trend toward the restructuring of the mutual life insurance companies: a need for increased access to capital and financial flexibility; enhanced corporate structure flexibility; ability to use stock as an acquisition currency; management recruitment and accountability; and tax savings. The conversion of a mutual life insurance company to a stock life insurance company is typically accomplished by one of two methods-a full demutualization or the formation of mutual life insurance holding company (MHC). Both of these options enable the mutual company to raise capital by issuing stock. In a full demutualization, the ownership interests in the mutual company are extinguished in exchange for cash or stock of the controlling entity. Thus the members receive an immediate, direct economic benefit. The controlling entity can be either the stock life insurance company into which the mutual life insurance company is converted or an existing or newly formed stock holding company that owns all of the stock of the converted mutual company. Generally, as an integral part of the process, the new stock holding company conducts an initial public offering (IPO) of its stock. Although most stock holding company is formed by the mutual company as a part of the demutualization process, there is no reason an affiliated company could not sponsor a mutual life insurance company`s demutualization and provide to the coverting mutual`s policyowners cash or stock consideration in exchange for the extinguishment of their membership interests. In an MHC reorganization the mutual insurance company restructures itself by organizing into two separate entities-an mutual holding company and a stock insurance company. The policyowners`` membership interests in the mutual life insurance company are exchanged for membership interests in the newly-formed MHC. As a result, the policyowners`` membership interests in the MHC will be similar to their membership interests in the mutual life insurance company prior to the reorganization. No consideration is distributed to the policyowners in an MHC reorganization because the membership interests are not extinguished, as they are simply transferred to th MHC. The contractual rights provided by their policies remain the obligation of the insurance company. Future owners of policies issued by the stock insurance company receive membership interests in the MHC. The stock insurance company-or an intermediate holding company that is interposed between the MHC and the stock insurer-can sell securities to the public, subject to the limitation that the MHC must own, directly or indirectly, not less than a majority of the voting stock of the insurance company. Most states have laws allowing mutual life insurance companies to convert to stock companies. These laws require approval of the plan of conversion by the company`s board of directors, policyowners, and regulators. While state demutualization may authorize several possible methods of demutualizing, the general process has become fairly standard. Once a decision is made to pursue an full demutualization, management of the mutual life insurance company prepares a plan of conversion that complies with state law. The first official act in a demutualization is the adoption of the plan of conversion by company`s board of directors. Demutualization statutes require that the plan of conversion be approved by an supermajority of the members voting. After approval by the company`s board of directors, the plan of conversion must be submitted to insurance regulator of the company`s state of domicile. For a variety of reasons, many mutual life insurance companies are reluctant to pursue a full demutualization. Following the decision to initiate an MHC reorganization, the mutual life insurance company`s management prepares a plan of reorganization that complies with state law. As in a full demutualization, the first official act in a MHC reorganization is adoption of the plan of the reorganization by the board of directors. All jurisdiction that have enacted MHC laws require the plan to be approved by an vote of eligible members. All jurisdictions require the insurance regulator of the state in which the mutual life insurance company is domiciled to approve the proposed MHC reorganization. If a MHC decides to move forward with a Phase II IPO, it will follow a process very similar to the process of a full demutualization. The restructuring of a mutual life insurance company has important consequences to its owners, who are also its customers. Our country`s insurance business law regulates mutual insurance company, but there is no mutual insurance company in our country. Therefore there is no practical need to discuss a conversion of a mutual insurance company. However, if there will exist a mutual insurance company in our country, we can adopt the debates regarding a demutualization in the United States.